Tax Implications of Donations
Glen Oaks Community College Foundation is a 501(c)(3) charitable organization. Its mission is to raise funds for Glen Oaks Community College and to provide scholarships for students to attend GOCC. Your contribution helps the Foundation to fulfill its mission and educate future generations. Contributions to GOCC Foundation are tax deductible to both individuals and businesses. There are numerous ways to make a contribution to GOCC Foundation, the tax benefits of which are discussed below:
- Individuals may receive a Federal deduction for their donation.
- Individuals must itemize in order to receive a federal tax benefit. The benefit will be equal to the donation multiplied by the taxpayer’s federal marginal rate.
- Contributions of $250 or more must be substantiated by a contemporaneously written acknowledgement from the Foundation. The taxpayer may not rely solely on their canceled check.
Tax Effects of Business Donations
Single Business Tax allows a credit against tax for donations to certain Michigan public institutions, such as the Glen Oaks Community College Foundation. This credit is limited to the lessor of 50% of the donation, $5,000 or 5% of your tax liability before public contributions credits.
For example, say a business that typically has $40,000 Single Business Tax liability makes a pledge of $10,000 payable over 3 years, ($3,333 per year). Comparing one-half of the contribution, ($1,667) to $5,000 and then to 5% of the annual tax, ($2,000), yields a credit of $1,667 per year for a total of $5,000 over the life of the pledge.
Federal income tax benefits will vary depending upon whether the business is taxed as a C-Corporation or as an S-Corporation or is a non-incorporated entity.
A C-Corporation would be able to deduct donations against its taxable income up to 10% of the income, before deducting donations and any net operating loss carryovers. Any donations that cannot be taken in a given year may be carried forward to the next five tax years. The actual dollar benefit would vary depending upon the marginal tax rate of the corporation. In the example; assuming the corporation is taxed at 34% and the total donations do not exceed 10% of the taxable income, the annual benefit would be $1,133 ($3,333 x 3.4).
For an S-Corporation, or other entity which is not incorporated, contributions pass through to the individual owner(s) who deduct them on their personal income tax returns. If, in the example the owner pays tax at the 31% marginal bracket, the tax savings would be $1,033 per year.
The following summarizes the above:
Actual costs and benefits will vary depending upon the particular circumstances of the potential donor. Consequently, tax counsel should be consulted to determine the actual tax benefits of any such contemplated gifts.