Making Informed Decisions

For charitable contributions made in 2020, there is now available an unlimited charitable deduction for cash contributions to public charities, for taxpayers who itemize deductions.

Businesses frequently make cash donations to charitable organizations. But what happens to the deductibility of those donations under the state and local tax limitations imposed by the 2017 tax law?

This issue continues to be the subject of discussion, but your business clients should be encouraged by the IRS's commentary. The IRS has taken the position that a business taxpayer can usually deduct payments to a charitable entity by treating them as Section 162 ordinary and necessary business expenses. Indeed, reducing the impact of state and local taxes itself constitutes a business purpose.
The continuing relevance of this topic is a reminder that philanthropy remains a priority in advising your corporate clients.
A new decade frequently inspires closely-held business owners to start thinking about an exit strategy. Before your business-owner client starts putting out feelers to potential acquirers, be sure to counsel your client about the benefits of contributing an ownership interest to a charitable organization, especially to a flexible Donor-Advised Fund at the Community Foundation.
It's critical to stay current on the IRS's interpretation of the statutes and regulations prohibiting charitable organizations from engaging in certain types of political activity.