Many of our clients ask whether making a donation or sponsoring a little league or soccer club qualifies as a charitable donation? In most cases it is just that, a charitable donation. However, there is an exception that can prove more tax favorable for your business.
If your donation gets some direct marketing benefit in return, beyond just a name and logo published, then it can be categorized as "advertising and marketing" and could qualify for a greater benefit.
Refer to the paragraph below to determine whether this applies and the expense can be categorized by law as "advertising and marketing". If you are uncertain, or you think you think your donation can be categorized as both "advertising and marketing" and "charitable", then assign your expense as charitable.
What constitutes an advertising and marketing expense?
Under certain conditions, a business may deduct what would appear to be a charitable contribution as an advertising and marketing expense. For the expense to be classified as an advertising expense, the business needs to substantiate that it received something in return (a direct benefit), so the cost can be classified as an "ordinary and necessary business expense." If the business just has its name and logo published, the IRS does not consider that to be a "substantial return benefit" and does not consider it to be a deductible advertising expense. Instead, it would be more beneficial for the business to follow the guidance provided under IRS Publication 598 of what constitutes an advertising expense, which includes (1) messages containing qualitative or comparative language, price information, or other indications of savings or value; (2) an endorsement; and (3) inducements to purchase, sell, or use the products or services. When these attributes are in place, the business would likely be able to deduct the fair market value (FMV) of its total contribution as a marketing expense.
Questions?
If you have any questions or concerns, please do not hesitate to contact TrueBlaze Advisors.
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