Businesses make charitable contributions for many of reasons. The Internal Revenue Service (IRS) allows businesses to use pretax revenues to make these contributions, which results in some tax benefits for an organization. In addition to the tax advantages, businesses also can gain goodwill from these donations.
Goodwill
One of the primary benefits of making donations is goodwill or improved public relations. The public often looks favorably on businesses that share their wealth for good causes. This can often result in increased revenues to the extent that the public purchases products and services from socially-conscious businesses.
Donating and the Tax Code
The U.S. government offers tax deductions and credits to businesses that donate to charity. A company can deduct donations from gross revenues, and thus shield this income from taxes. To qualify, a business must donate to an IRS-recognized charitable organization, such as a 501(c)3.
Corporate Foundations
Corporate foundations also represent a significant part of business donations. In the case of a foundation, the business will donate pretax revenues directly to the foundation it sponsors. The corporate foundations themselves are tax-exempt entities. The IRS also allows the corporation to deduct donations made to the foundation from pretax revenue.
Benevolence and Self-Interest
Some may view the benefits of corporate charitable giving as a negative, essentially using a benevolent act to profit. However, if businesses did not gain in some way, it follows that fewer companies would make donations. The IRS allows businesses to use pretax revenue to make charitable donations because it provides businesses with a huge incentive to help non-profit organizations.
