Small businesses have to be strategic about giving

CHICAGO (Reuters) - For a small business owner, Greg O’Neill takes a big company approach to charitable giving. His gourmet food shops are besieged with appeals from a range of causes, so he requires solicitors to apply through a portal on his company’s website. A staff member culls requests.

Greg O'Neill, co-owner of Pastoral Artisan Cheese, Bread & Wine, stands in his shop in Chicago, October 30, 2012. REUTERS/Deborah Cohen

“It’s like drinking out of a fire hose,” says O’Neill, co-owner of Pastoral Artisan Cheese, Bread & Wine, whose three Chicago stores are located in upscale neighborhoods. Having a retail food business, he says, “places a bull’s-eye on your head.”

Large and small businesses are inundated with requests for charitable donations. Although giving freebies or cash can shave precious dollars off already razor-thin margins, many companies find the dollars they give get repaid in publicity and customer loyalty. It helps to be strategic in choosing target organizations and to pay attention to bookkeeping and tax benefits, say small business owners and advisers.

As always, however, “you have to watch your own finances first,” says Ruth Goran, a certified public accountant who works with small companies in the Chicago area.

Corporate giving accounted for 5 percent of the $298.4 billion Americans donated last year, according to Giving USA Foundation, which does an annual report on philanthropy. But with many businesses needing to conserve cash, a selective approach such as O’Neill’s makes sense.

Pastoral, with less than $10 million in annual gross revenue, gave roughly $20,000 in 2011, much of it cash, to a variety of causes, primarily those focused on providing healthy food and maintaining sustainable agriculture.

“Generally we feel we make a bigger difference close to home,” says O’Neill, who directs much of the effort to local charitable groups registered as 501c(3) tax-exempt organizations, which allows him to write off the donations for a tax credit.

He also chooses groups that feature Pastoral’s goods at events, which raises the profile of his business. O’Neill can’t quantify the impact on sales he’s gotten from the efforts but says the goodwill ties directly to his business mission.


Small businesses with tax structures that pass through to the owners’ or partners’ personal income tax returns don’t actually take business deductions for their charitable gifts; contributions are tallied on the owners’ own tax returns as itemized deductions. But owners should consider making donations on behalf of their businesses anyway, says Goran.

“It is good business strategy,” she says. Customers often choose to buy from socially oriented companies, and those gifts can boost a firm’s reputation in the community.

Although the obvious choice might be to donate business services - anything from massage to consulting - that may not be the most tax-favored approach. Neither the typical cost of the service nor the value of an owner’s time can be deducted, but the out-of-pocket costs associated with providing them, such as gas or train fare, can, Goran says.

Business owners typically can deduct the value of inventory, such as goods in a retail store that make their way to a silent auction or other charitable event.

Just like individual donors, business owners should itemize every cash donation and save receipts, says Goran.


Arlington, Virginia, financial planner Lisa Kirchenbauer supports the idea of businesses giving to causes that owners and workers care about but advises her clients to steer clear of controversial organizations that could alienate portions of the customer base.

“There’s a bit of discernment you have to go through on this,” she says. Business owners have to go beyond the usual charity vetting to make sure the organizations they target fit with their business objectives.

The thematic approach - donating your bakery’s food to a food charity raffle, or providing shirts from your clothing store for race participants or the local soccer team - is one way to set boundaries and create awareness of a company’s role in the community, says Caroline Worley, an attorney in Columbus, Ohio, whose practice focuses on startups and small businesses.

Regardless of how they give, small companies might want to take advantage of existing tax laws and donate before year-end, as 2013 will likely bring a host of changes, including some that could crimp tax benefits for charitable donations.

“We really don’t know what’s going to happen; there’s so much uncertainty,” says Melissa Labant, director of taxation for the American Institute of Certified Public Accountants. “I think this is the year to make charitable contributions.”

As for Pastoral’s Greg O’Neill, he’s already on it, thinking of strategic ways to raise his company’s profile while doing good.

“We can’t save the whole world,” he says. “We can save a piece of it and make a mark.”

Editing by Chelsea Emery, Linda Stern and Douglas Royalty