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A business owner leads a meeting in a conference room, speaking to colleagues seated around a table with a flip chart showing a line graph.

Strategic giving

Choosing the right charitable vehicle for your business.

Corporate giving reached a record high in 2024. According to Giving USA’s The Annual Report on Philanthropy, businesses donated $44.4 billion – a 9.1% increase from the previous year. As companies continue to recognize the value of social responsibility, their giving strategies have become more intentional.

If giving is part of your business plan, there are several ways to donate to charities that align with your corporate values. In addition to making an impact to causes your care about, qualifying donations can reduce your tax liability. Here are some ways you can make a difference – for your favorite mission and your bottom line.

Make direct charitable contributions

You may want to donate cash or other assets such as appreciated securities, real estate or goods and services directly. These gifts are typically tax deductible to IRS-approved 501(c)(3) organizations.

Your deduction will vary depending on your business structure and the asset you give. For C corporations, charitable contributions reduce taxable income and are generally limited to 10% of taxable income. For S corporations, partnerships, LLCs and sole proprietors, the deduction is applied to shareholders, partners, members and individuals, respectively. The limit for these structures range from 20% to 60% of adjusted gross income (AGI) depending on the type of gift and charitable vehicle. 

Establish a corporate foundation

A corporate foundation is a separate, nonprofit entity funded by the company to manage ongoing charitable giving. Contributions to the foundation are deductible and can be funded with assets like cash, private equity, and publicly traded securities, for example.

Because there is more administrative oversight required, like annual filings and board governance, a corporate foundation may be better for a larger company or those committed to leaving a charitable legacy. It may be selected because a company wants to carry out a long-term philanthropic vision with sustained impact, like its own grant initiative or scholarship opportunity.

With a corporate foundation, you can get board members, executives and employees involved in directing donations. All foundations are required to distribute at least 5% of their assets to charities or qualifying individuals each year.

Start a donor advised fund

Creating a donor advised fund (DAF) is beneficial for organizations that want to have a tax deduction in a high-income year but want flexibility to spread out their donations over time. The tax deduction for contributing cash can be up to 60% of AGI and 30% for long-term appreciated assets. You get to take the deduction in the year you make the contribution, but you’re not required to make grants from the fund immediately. There are typically no mandatory annual distributions, and you can even remain anonymous if you wish.

DAFs don’t require as much administration as a corporate foundation, so it can be more attractive for small- and medium-sized companies. Just like a foundation, you can involve others in directing the donations, but without the formalities of board meetings and governance.

A DAF is also a popular choice because you can easily contribute as often as you’d like with cash, securities and other illiquid assets. It’s like a designated investment account for charitable giving, however, it’s important to note the funds must be donated to 501(c)(3) once they’re

Incorporating philanthropy into your business plan can help you make a significant impact on the causes you care about. And employees are seeking companies that align to their own values and prioritize giving back to their community. As a business owner, you have a powerful opportunity to inspire change and leverage your company’s success to make a meaningful impact.

Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a donor advised fund for federal and state tax purposes.

Sources: givingusa.org