Dear Santa, how can I, as a business owner, give back while remaining financially stable?

Sincerely, business owner.

Well business owner, we may not be Santa, but we do empathize with your gift-giving conundrum. Tis’ the season of gift giving, not just to our friends and family, but to the causes near and dear to us. The Pandemic has not made it easy for many businesses to stay in the green, let alone give back this season. However, there are a few ways your business can donate that have a positive impact on your business’ finances. But my business doesn’t have that kind of cash. No problemo – there are different ways to solve this puzzle. 

The Different Ways to Donate

First up, let’s talk about charitable donations and gifts. We want to emphasize the importance of making sure it is a registered charity so that you can obtain an official donation receipt. If you’re unsure if the charity you are donating to is registered, please check this list for Canadian registered charities. 

The easiest donation your company can make is cash. If your business is financially sound with net income at your disposal, then this may be the quick and easy way to donate. If your business doesn’t have the extra cash to spare, no worries — here are three options to create some so you can donate while remaining financially stable:

  • Option 1: pricing increase. Look through your product/service’s pricing, perhaps increasing it by a small percentage can give your business a big amount over the year to donate to a registered charity. From a marketing perspective this can also double as another reason why a customer should pick your company over a competitor. You can even choose a cause that your customers care about and your employees value.
  • Option 2: donating your product. Let’s say you’re a furniture store with one stubborn table set that needs to go by the end of the year. Instead of selling it at a discount, you can donate it to a charitable organization that needs it. Habitat for Humanity Canada would be a great registered charity to look into. 
  • Option 3: a new product. Another take on product is designing one with 100% of the proceeds going toward a charitable cause. This can be year round or a seasonal campaign. If you’re a bakery this could look like creating a special charity cupcake with 100% of the proceeds going toward a registered charitable organization.

The Key Financial Benefit: Deductions

Charitable donations and gifts can be used to claim a deduction from your business’ net income. Essentially, your business’ net income is reduced for tax purposes which means the amount of tax you owe will be lowered. That’s right, lowered! The general rule is that the maximum amount of a charitable donation your business can deduct is 75% of the business’ net income. Let’s break it down with two examples.

Example 1

Comet Co. has a net income for 2021 of $80,000. During the year, monetary donations are made to a few registered charities totalling $30,000. Comet Co. has obtained the official donation receipts for them. The maximum amount of charitable donations that Comet Co. can claim is 75% of $80,000 = $60,000. Since $30,000 is under $60,000 Comet Co. can claim the full amount.

Example 2

Claus Inc. has a net income for 2021 of $30,000. During the year, gift donations of products are made to a few registered charities totalling $23,000. Claus Inc. has obtained the official donation receipts for them. The maximum amount of charitable donations that Claus Inc. can claim is 75% of $30,000 = $22,500. Since $23,000 is above $22,500 Claus Inc. can only claim $22,500. The $500 difference will be carried forward to the next fiscal year.

How Do I Know Which Option is Best for My Company?

The key, as always, is financial planning. For a financially sound company, this means figuring out how much to donate in order to maximize the benefit of an income tax deduction. For other companies, this means playing around with pricing increases, figuring out the fair market value of a product to donate, or if the company can afford to eat direct costs to donate 100% of a new product’s proceeds toward charity. Of course any of this can be manually calculated, but at Chartd we’ve got the solution, and it’s a gift for you.

How Chartd can Help

At Chartd we take the pain out of financial planning and number crunching. Just grab your business’ income, expenses and pricing numbers, type them in, and let the magic happen! Play around with pricing to project revenue. Estimate your future net profit and plan your charitable donations accordingly. Even set up the expense of that new product and see if you can afford to eat the direct costs to donate it. Whatever your problem, we can help you find a solution without the hassle this season. Join today!

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