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5 Tips for Helping Clients Who Make Charitable Donations

Jena Kosinski
Posted by Jena Kosinski on Jun 29, 2021 8:09:14 AM

If you have clients who enjoy making donations, their books may look a little different. So, you need to keep a couple of tips in mind when working with clients who donate. Let’s take a look at how to guide your clients through the process of making charitable contributions.

Simplifying the charitable donation process

The charitable donation process and requirements can be confusing for your clients, especially if it's their first time donating. To help make the donation process easier for both you and your clients, follow these five tips.

1. Clearly document the donation

Whenever your clients donate, you need to know the specific details about the contribution. So, what information should your clients provide to you? Let clients know you’ll need:

  • The name of the organization
  • Contact information for the organization
  • What they donated
  • The nonprofit status of the organization

For charitable contributions to be considered gifts, the receiving organization must be a qualifying nonprofit organization. In most cases, qualifying nonprofit organizations have 501(c)(3) tax-exempt status with the federal government.

You may ask for the type of organization your client donated to if you need to verify the status. Some qualified nonprofits include:

  • Churches or religious institutions
  • Children or animal welfare agencies
  • Educational organizations
  • Literary organizations
  • Public or private charities (e.g., American Red Cross)
  • Scientific organizations
  • Public safety testing organizations
  • Amateur athletic organizations

To help track the information, consider creating a printable document to distribute to clients who tell you they plan to donate.

2. Determine if the charitable donation is tax deductible

Not all charitable gifts are tax deductible. So, be sure to let your clients know which donations are tax deductible.

So, what donations are tax deductible? Your clients can only deduct:

  • Money or property they give to qualifying organizations
  • Expenses they pay for students who live with them that are sponsored by a qualified organization
  • Out-of-pocket expenses incurred while volunteering at a qualified organization (e.g., mileage expenses)

Donations to for-profit organizations or political parties are not tax deductible. 

For example, you may have a client who gives a cash gift to a local organization (Charity A). But, they volunteer time with a national charity (Charity B). The cash they give to Charity A is tax deductible...

...But, how will they deduct the time they spend volunteering with Charity B? The client may deduct the mileage expenses incurred while driving to and from the volunteering event. You can help your client determine the cost of gas and oil related to the volunteer trip or have them claim the 14 cents per mile charity mile deduction.

3. Enter the information into the client’s books ASAP

As with all bookkeeping entries, you know you need to enter the information promptly to ensure accurate records.

Inform your clients that they should report their business charitable donations to you as soon as possible. Why? Because forgetting to report charitable contributions could result in the client needing amended tax returns or losing out on tax deductions entirely.

You may consider adding a schedule to your calendar to check in with your clients at key points throughout the year. After all, 31% of all charitable giving occurs in December, and 12% happens in the last three days of the year. With that in mind, you may also want to send out reminders to clients throughout the year to ensure your clients’ books are up-to-date.

4. Inform clients of charitable donation tax deduction limits

If your client plans to donate to charity because of tax deductions, inform them about the limits. Tax deduction limits may change what a client chooses to donate.

Let clients know that the IRS limits their charitable contributions to a percentage of their adjusted gross income (AGI). The set limits are:

  • 100%
  • 60%
  • 50%
  • 30%
  • 20%

The amount a client can deduct depends on the type of property donated, if they contribute to more than one qualified organization in different limit categories, and the specific category of the qualified organization.

Consider speaking with your clients about the limitations at the beginning of the year.

5. Work charitable giving into financial planning

If your client is considering making donations to charity, work the anticipated funds into their business budget. Some clients may wish to donate to charity, but there may not be enough room in the budget for it.

If your client wants to make charitable donations, work with them to address their business needs first and foremost. Then, see if your client has some wiggle room in their budget for charitable donations.

If your client regularly donates to charity, consider planning the annual budget with the charitable contribution in mind. You may look back at old budgets and notice trends where costs are lower and help your client plan a donation for a specific month or time of year.

For example, Client A operates a landscaping business. Most of their income comes from work performed between May and September. And, most of their expenses are in those same months. But in April, they have a bit more income than expenses, according to their previous financial statements. So, you work with the client to include charitable giving in the April budget.

Clients have their own unique reasons for charitable giving. Staying on top of what they need to know helps them (and you) be prepared for if they decide to include charitable donations in their financial decisions.

Topics: Tax Preparation


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