Donor-Advised Fund vs. Private Foundation: What’s the Difference?
4 Tax Planning Strategies To Maximize Corporate Donations
The positive impact of corporate giving on employees and nonprofit organizations is by no means the only advantage. The considerable tax benefits of giving through a donor-advised fund (DAF) can support business health too. When an organization can minimize its tax burden through tax deductible donations, there’s a smoother path to long-term growth. Follow these four popular tax planning strategies for achieving that goal.
1. Time Your Donations
No business operates in a bubble. External economic factors affect performance as much as internal decisions. One consequence is that annual revenue (and tax liability) is often inconsistent. There may be windfall years following rapid expansion or sale of assets, or fallow periods when investment outpaces revenue.
One of the big advantages of donor-advised funds is that they allow a business to make several years of contributions in a windfall year, and take the tax deduction up front for that tax year. Focusing contributions on the years with greater revenue can reduce the tax liability. Although contributions cannot exceed 25% of taxable income, the excess is carried forward for a maximum of five years. Crucially, there is no minimum contribution and donations do not have to be disbursed immediately. In other words, the corporation can make the donation now to lock in the tax deductible, without having to decide on where those funds will be allocated.
2. Avoid Capital Gains Tax
Although capital gains tax in the U.S. is relatively modest at 15% or 20%, it could be as low as 0%. Giving through donor-advised funds is one way to achieve that target — again with the possibility of taking the tax deduction upfront.
Selling any appreciating business assets will incur capital gains tax, whether it’s the sale of a business subsidiary, real estate or stocks. Rather than losing 15% of the profits to capital gains tax, corporations can donate the assets to a DAF and still claim a tax deduction (up to 30% of adjusted gross income) at the current market value rather than the purchase price.
That kind of prudent financial management not only builds investor confidence in a board of directors. It also leaves the business with more to invest back into the organization when assets are sold, emerging stronger, not weaker.
3. Avoid Estate Tax
Estate planning is another area in which businesses have the potential to reduce their overall tax burden. As of 2022, any estate valued at over $12.06 million will incur estate tax, and the top rate is as high as 40%. Losing almost half the value of an estate to taxes is hardly an attractive proposition. Fortunately, assets within a donor-advised fund are not included in an inherited estate, therefore are not subject to estate tax. Corporations can remove high-growth assets from their estate by parking them in a DAF, and take the current market value deduction for the tax year in question.
4. Bunch Your Donations
Following changes to tax law in 2017, there’s a significantly less financial incentive for donors to itemize deductions. By contrast, the standard deduction has risen from $6,350 in 2017 to $12,950 in 2022. With that shift in focus comes a clear invitation to bunch donations in a single installment, instead of making them over a number of years. Particularly where a business is close to the threshold, it now makes sense to consolidate funds into a bigger donation in one year to maximize the tax benefits, then take the standard deduction in subsequent years.
Example: A single filer (whether business or individual) whose charitable contributions were “on the margin,” that is, nudging the $12,950 threshold annually, can now consolidate two or more years’ contributions in year one to take a larger deductible, then receive the standard $12,950 deduction in the following year.
Effective Corporate Giving Programs With Groundswell
Groundswell offers a seamless way to make corporate donations simple. With a donor-advised fund, your business can invest the funds in the most advantageous tax circumstances without having to decide when those donations will be granted out. That is for the sponsoring organization to manage. At the same time, the business can take the immediate tax deduction to minimize the tax burden in a given year. Contact us today to see how your business can give better.
How Do Tax Deductible Donations Work for Corporations?
The right for corporations to deduct charitable donations from their taxes was established in 1935. Today, corporate philanthropy is a consistent feature for most of the world’s biggest brands, to the point where corporations donated over $21 billion to nonprofit organizations in 2019. Yet no matter how straightforward the motivation for businesses, the rules surrounding tax deductible donations are complex. Here’s how donations work and which vehicles offer the most compelling benefits.
What Are Tax Deductible Donations?
The fundamental provision of tax deductible donations, as set out under section 170 of the Internal Revenue Code, is that donations to nonprofit organizations with tax-exempt status (see IRC 501(c)(3)) reduce the overall tax burden for the donor corporation within that particular tax year (the IRS provides a useful search tool for looking up the tax-exempt status of an organization). With some exceptions, only funds or foundations within the United States qualify.
Corporations can donate the following:
Cash: still the most common form of tax deductible donation. Often, corporations will sponsor a charitable event and then match whatever funds are raised by employees.
Inventory: in the form of supplies and equipment. Tax is deductible on half the difference between the cost of inventory and its fair market value (which cannot be more than twice the cost of the inventory).
Real estate: rather than selling property and giving the proceeds to a nonprofit (which would incur capital gains in the long term), corporations can donate it to a donor-advised fund (DAF) and receive the current market value tax deduction with no capital gains.
How Do Tax Deductible Donations Work?
The regulations vary for different types of corporation, but some rules apply across the board. Tax deductible donations cannot be for personal or shareholder benefit, for example, so the purpose must be philanthropic. Similarly, contributions must be made before the end of the tax year. Arguably the most important rule, however, is that nonprofit contributions cannot exceed 25% of taxable income (excluding disaster relief). Until recently this figure was 10%, but the IRS extended the limit (temporarily) in 2021 in response to the COVID-19 pandemic. Any excess donations over the threshold are carried forward for five years, after which tax deductions no longer apply.
Deductible donations by corporation:
C corporations, in which the corporation is taxed separately to the shareholders and owners, are the only business structure that can write off a nonprofit donation directly.
Sole proprietors have to report nonprofit donations as an itemized deduction on their personal tax return (Schedule A). Donations cannot be deducted on Schedule C, where business income is declared.
S corporations and partnerships also have to report donations on the individual tax return of each shareholder. In this case, the value of the corporate donation is divided up amongst each shareholder.
No matter what kind of structure a business has, it is required to maintain full records (receipts, registered charity number, bank statements, etc.) of any nonprofit donations to qualify for tax deductions. If the cash donation is over $250, there must be written acknowledgement from the tax-exempt fund or foundation, while for non-cash donations over $5,000 there must be a written property valuation from a qualified appraiser.
What Are the Benefits for Corporations?
While the prospect of a tax write-off, depending on how the business is structured for tax purposes, is a clear incentive, it’s not the only motivation. Donations to nonprofit organizations also foster community goodwill, fortify the corporate mission and improve culture and employee engagement. Increasingly, consumers want to see greater evidence of their favorite brands driving change within their communities, either on a local or national level.
Finding the Right Vehicle for Tax Deductible Donations
Changes to the tax law in 2017 nearly doubled the standard deduction for most individual taxpayers, meaning that there’s now less incentive to itemize deductions as opposed to “bunching” them. As a result, there are even more advantages to donating through DAFs, since these allow corporations to make several years of contributions in a single (typically windfall) tax year.
DAFs also offer some attractive advantages compared to donations through corporate foundations. For a start, there is no minimum annual giving requirement for a DAF and contributions are not publicly reported. That allows corporations to make a larger donation within a single tax year, without having to decide immediately where those donations should be allocated. Because a DAF is managed by the sponsoring organization, the responsibility for disseminating funds does not fall on the corporation, so fewer personnel and resources are required. The corporation just has to establish how much it wants to contribute within the current tax threshold.
For any corporation looking to unlock the financial and brand value of nonprofit donations, Groundswell can provide professional expertise in contributing through a DAF or private foundation. Learn more about boosting employee engagement, supporting the wider community and trimming your next tax bill with Groundswell.
How To Improve Morale at Work: Groundswell Feature in Lifehack
When workplace morale is high, it affects employee engagement and productivity in positive ways. Yet as companies pursue increasingly remote and decentralized operating models, the happiness quotient can be difficult to maintain. That may leave many leaders wondering how to improve morale at work.
According to the article “11 Ways To Boost Workplace Morale,” published on Lifehack, there are many ways to boost morale and help employees feel more connected to the organization and its core principles and values. For many employees, particularly millennials and Gen Z, it’s not just a matter of phoning it in and collecting a paycheck. They want to feel that what they do matters and that the companies they work for care about making the world a better place.
That’s why corporate giving programs are so important. In fact, Groundswell was mentioned in the Lifehack article as a platform that allows companies to turn donor-advised funds (DAFs) into an employee benefit.
Following, we’ve provided a brief rundown of some of the highlights from the article:
It’s important to gather feedback so that you understand what’s working and what’s not. Provide open-ended questions and allow anonymous responses to invite candid responses. Exit interviews are a good way to get constructive criticism.Communication
With more people working from remote locations, it can be difficult to ensure that everyone is on the same page or that they feel connected. Take extra steps to ensure that employees are not isolated and lonely.
Trust employees to do things on their own to meet the deadlines and objectives established. Empowerment goes a step further, as well. Lift employee morale by inviting them to the table. Asking for input in brainstorming sessions helps employees feel included.
Use praise generously and ensure that it is, at least most of the time, unconditional. This means that it comes without counterpoints or corrections. Everyone has something you can praise. Praise does not always have to be verbal; it can come through other forms of recognition like a promotion.
Although leaders must be prudent about sensitive information, it never hurts to give employees the information they need to know. In fact, this will help them feel like valuable members of the team.
Bond through team building activities that allow employees to get to know each other beyond water cooler chitchat. These activities needn’t be elaborate or expensive. Meeting icebreakers and trivia questions can work as well as an escape room outing. There are also virtual team building activities for teams that are not co-located.
Bring teams together outside of work to help the community. Platforms such as Groundswell, which can turn corporate giving into an employee benefit, can be used to facilitate employees working together toward charitable goals.
Trust teams to get the work done. Leaders who can do this without excessive input or monitoring will find that morale increases.
Motivate employees using small incentives. Praise works well, as does a premium parking space or small spot bonus.
Oftentimes, workers feel that they can never stop working. As a leader, encourage employees to take sufficient breaks. Even short periods of time, like 30 seconds, can boost productivity by 13%.
The competitive environment, particularly technology, is changing rapidly. Offer ongoing training to let employees know that you are willing to invest in them for the long haul.
Clearly, there are many ways to bolster morale. Start by measuring, then determine the steps needed to keep your employees engaged and productive. To read the full article, visit Lifehack. Need help with boosting morale and increasing employee engagement? Groundswell can help you reimagine your approach to employee benefits. It’s easy to add Groundswell to your existing benefits package and create a program that employees can be passionate about. Contact us for more information.
From Dock to Dish: A Deep Dive Into Seafood Sustainability
This week we dive into an interview with Wendy Norden, Director of Science and Global Strategies at Seafood Watch Program at the Monterey Bay Aquarium, discussing the interconnected depths of consumer buying, aquaculture, climate change, and economics of seafood.
Celebrating seafood sustainability is a cause bigger than itself affecting human populations around the world as much as the species we fish and farm, and a cause that Meg Vandervort of Groundswell is particularly passionate about. Meg sat down with Wendy Norden from the Monterey Bay Aquarium’s Seafood Watch Program with questions to help all of us non-marine biologists understand the challenges and successes surrounding sustainable seafood.
Wendy spent years working underwater as a marine biologist and researcher, before moving to New Zealand and working in a government role overseeing their seafood industry. For the past twelve years, Wendy has been with the Monterey Bay Aquarium and is currently the Director of Science and Global Strategies for their Seafood Watch Program, responsible for the overall scientific integrity, vision, innovation, and direction of the program. She’s also in charge of maintaining global strategic direction and partnerships that support global fisheries and aquaculture improvement.
Welcome! In celebration of World Oceans Day this year, I’m excited to dive into a topic near and dear to me—seafood sustainability. I’m a huge fan of Monterey Bay Aquarium and have been following the Seafood Watch program for some years now. For those who aren’t as familiar, can you give a brief overview of what Seafood Watch is doing to advance healthier oceans?
Wendy: Sure, and of course. Seafood Watch provides the information needed to make better choices at the supermarket, and we’ll work with business partners to really source seafood and see that it’s more responsibly done. And it really boils down to very difficult subject matter into a guide, like red, yellow, and green, knowing what to source and also knowing that you know, consumer choices really do matter quite a bit.
You know, that also has very broad reaching applications as well. So when consumers make choices in the United States, our business partners kind of come to the table—they want to source those seafood products that the consumers are looking for and also to make a better planet as well. But on top of that, it also gives producers around the world an idea of where their product is in terms of sustainability. And it is a big landscape, right, from really great production to really poor and everything kind of in between.
So, we provide that information that helps guide purchasing but also helps industry understand about sustainability in order to make change and make things better, because our goal really is about celebrating seafood, making the right choices, and hopefully improving the rest.
That’s wonderful! I’m actually curious to learn a little bit more about you. We always love to highlight the people behind some of these amazing movements that are happening, but can you give us a brief history or your journey to the Monterey Bay Aquarium, Seafood Watch program, and have you always had a passion for the ocean growing up?
Wendy: It’s a very winding path. Growing up I got into scuba diving. Before college, I worked several jobs and saved a lot of money because I wanted to travel, so then I went to New Zealand, Australia, and Fiji as a young person. When I went scuba diving in most of these places for the first time, I did not realize at that point that it could be a job, like you could actually do this kind of work.
The minute I came back home, I officially got advanced certified and I enrolled in college to really be a marine biologist. Everyone told me at that point, “that’s nice, you’ll never get a job”, but I was determined to do it anyway because I knew I’d figure it out. Throughout college, I had a lot of great internships, and I did a lot of work underwater. I got more experience doing research, but I wanted to do more.
I ended up moving to New Zealand for several years, and I got a really great job working for the government working on a program to reduce bycatch, and I actually worked on the observer program for the whole country. That really helped me understand how to work better with the industry, how to set goals that maybe people didn’t agree with, but learned how to actually work together. That and science, plus understanding what to actually call it, really helped me. With that experience, I ended up working in academics for a while. When I got to Seafood Watch, all that experience helped me understand how to apply science in an understandable way—how to work with the industry, knowing that you might be at odds at some point, but you actually all want the same end goal as well.
It really helped me set up my career, and I’ve been with Seafood Watch for almost twelve years now. It’s been a very exciting journey. I learn every day—something different, something new—and I have amazing partners.
That’s exciting! Sounds like a dream job.
Wendy: Yeah, I feel really lucky. I never get bored. I find I’m amazed at the people that I meet all the time because I travel—or I used to before COVID— all over the place, talking to people about seafood, working with producers, understanding where everyones’ values are. At the end of the day, everyone wants to do a good job for seafood sustainability.
You touched on something that leads me to my next question about seafood sustainability in general, which is that it’s actually an extremely complex thing, and it’s not so cut and dry, like just buying from the local fisherman, or don’t eat fish.
But between sustainable fishing practices, aquaculture and the seafood supply chain – it’s a lot to wrap your head around. What would you say for someone who’s just getting into understanding this topic? What is the most pressing thing we can focus on?
Wendy: I feel like at any level, if you want to get involved, there’s a place for you. I think if you really just want to, say, I want to understand the source of a particular seafood and I’m going to purchase responsibly, use our information. We boil it all down into very simple red, yellow and green.
All of our reports and assessments are online, so if you want to dig a little deeper, you can read those assessments and understand the issues. There really is a place for any level of information you want, essentially, because we put it all out there. It’s all out there publicly available.
I think it really is important to know that the choices we make do matter at the grocery store. They do mean something. And they help us do our work and improve, because we want to celebrate seafood. We think eating seafood is a great thing.
We want to have all seafood produced in a way that’s sustainable and when I say sustainable, I mean the environment. I mean food security. I also mean things like better equity and supply chains. So, it really has to be good for people and the ocean.
Oh, that’s so interesting. I’m also curious, from the general consumers’ perspective, a question that might come up is “should I potentially avoid buying a particular type of seafood?” For example, if I’m buying shrimp, is it more likely that it’s unsustainably caught or has human trafficking attached to it?
Wendy: I go back to using our recommendations. The red is really what things you should avoid. Our hope is that red doesn’t stay red. Our hope is not like you just abandon it and say, I’m not buying this again. But it does matter because when consumers don’t buy something because it’s red, that gives us a lot of incentives to go to the industry and say look, this is really what people are wanting. They want more sustainable products. That does go a long way.
What we do in our reports is dig into those major issues. Why does it cause red? So we have standards that we develop from wild-capture and fisheries. We know scientifically why it’s not sustainable, and it gives us the consumer demand. It really gives us that extra incentive for the industry to make those changes, which are also good for them.
Any seafood product generally can be the best choice, farmed from any country that has a species—it’s just a matter of us getting the right data, and us being able to say it isn’t being done the right way.
So the ability is there, like our green listing isn’t completely aspirational. It is doable, but it’s a high bar. Everyone can actually get there. And that is our goal: To push the entire industry and have a much more sustainable industry overall.
On a brighter note, what are some of the bigger recent accomplishments that the Seafood Watch program has had that maybe people don’t know about?
Wendy: Well, I think a big one that we haven’t talked about enough is our development of our improvement verification platform, which doesn’t sound very exciting, but it really is. We have developed the technology with partners to collect data efficiently and quickly on a farm and then scale it up to a region to understand. We actually can assess thousands of farms and in little time spent, get them to that green level. That has not happened in the past. We’ve developed technology that basically works online or offline and collects data efficiently and quickly, and then we scale it up to a region so you can have more scalable change. It also identifies areas needing improvement.
We already have 2,000 shrimp farms going through the system that are green. To me, that’s a huge accomplishment that’s taken us a long time to develop. Very exciting.
We also have recently launched aquaculture governance indicators, which again doesn’t sound exciting, but it is because we have developed these indicators. We don’t really know what makes really good aquaculture governance structures. What do you need to have? What are the key elements? We worked on developing those key elements to help the governance structures, and it isn’t just about legislation, it’s about how the industry is formed, and how reactive it is to change and how adaptable it is that the system in place in a country or region that allows for good things to happen allowing for sustainability.
Understanding those underlying conditions and what gets in the way of sustainability is super important, because it isn’t as simple as saying, here’s a checklist. There’s a reason why that isn’t happening. And it could be infrastructure, it could be poverty, it could be too many illegal things happening. It could be many different things. It helps us understand underlying conditions that exist.
A third one I’ll just briefly talk about, one issue, is why use antibiotics for aquaculture? And that’s spread across every production system from farm salmon, shrimp, tilapia, you name it.
We convened a large working group of fifty people from over twenty-one countries in the last year with the World Bank and came up with the key areas of impact on antibiotics, because we still don’t even know that necessarily. What are our key recommendations going forward about what we think we should do, and how do you actually make sure the antibiotic issue doesn’t get out of control? Because right now, with warming water temperatures, you’re gonna have more disease, more need for antibiotics. And in poor countries, you often don’t even have labels on bottles for these things. Some people don’t really know what they’re putting in their ponds.
We are going to be launching our key recommendations very soon on that government and industry and then we’re also doing a series of workshops to talk to farmers directly and find out what their needs are.
Wonderful, thank you so much for your insight and time, Wendy!
For Seafood Watch’s consumer guides to buying sustainable seafood that Wendy mentions, you can find them at SeafoodWatch.org.
Log into your Groundswell Personal Giving Account to support Monterey Bay Aquarium and the Seafood Watch Program.