Business is about earning profits but giving back to society can bring about social and environmental benefits. You may wonder if donations are important to the business and may even be surprised to know that they are!
Donations from small businesses can actually have a big impact on the community. A donation in the form of cash, goods or services will not only help the ones in need but also bring your business out into the spotlight.
There are various organisations and causes that are available for contribution when it comes to donating. While businesses might simply want to contribute cash, some charitable organisations also accept non-monetary items that include personal property, stock or real estate.
A business is eligible for a tax deduction, regardless of the form of donation. However, to get any benefits from your charitable donations, it is crucial to record them correctly.
Everyday Accounting Can Be Quite Easy, But What About Recording Donations?
Once your business involves donations, you will get a tax deduction, but only if the organisation to which you are donating to is an Institution of Public Character (IPC). However, the donations should be made along with your tax reference number and company name.
This information will automatically get updated, and you will receive the tax deduction. Repetition is very important in small businesses; hence by engaging in any type of donation, your company will be remembered by your customers.
A vast majority of customers look for companies that make donations towards charities, and by doing so, your company will have a chance to stand out from the rest.
Cash Vs Goods Donations
It is not always necessary for you to donate cash, as you can also contribute goods and services, but before you step into this, it is better to understand certain terms like debit and credit. These are like two sides of a coin. Both are equally important.
This might sound and look easy, but putting these on paper may take time and energy. Ignoring donations will leave a negative mark on your company, so let us focus on some tips to create an accurate and organised donation scheme. It is also a great way to save on tax while filing your tax returns.
Cash Donation
Although you are just making a donation, it is still important to keep track of what you are doing. This can be done by following the tips below to ensure you are doing it correctly:
- Set the organisation as a new vendor.
- Create an expense account for the donation.
- Record the cash in the name of the charity.
Non-Cash Donation
Recording the non-cash donation is equally important as you are giving away a product of yours without getting income. So, you should consider doing the following:
- Create an invoice for the donated product.
- Open an expense account.
- Represent the inventory as a charitable contribution.
Documenting all the above-mentioned points is essential. Cash donations should be documented with the name of the charity, the date of the donation and the amount of the donation.
In order to document the product donation, you need to know the fair Market Value. This value can vary, and in order to find the market value, you can either look for similar products or simply hire an appraiser.
Ways To Track The Donations
- Using software and apps – this will be very convenient and easy to use, and it will give you easy access whenever you need it, as the apps will save all your donations to charities for the year in a single folder.
- Digitalise – another easy way to record the details is to scan every receipt and document and save it in a folder, but make sure to delete any folders that are not needed.
- Paperwork – If you prefer doing things the traditional way, then this is a good choice. All you will need is a pen and a book, but make sure that you note everything down and keep them safe.
Steps For Tax Deduction
- Download the Taxable Income Calculator.
- Update the calculator with the income.
- Type the donation amount.
- Next tax deductible amount will be automatically updated.
According to the Inland Revenue Authority of Singapore (IRAS), there are certain donations that do not get a tax deduction. That is:
- When your donation turns into a promotion. That is, if you put up banners and advertisements, your donations will not receive any tax deduction.
If the donations are sent to a foreign nation. - A frequent question that pops into everyone’s mind is how to find the right organisation for charity.
Here are some organisations that you can consider giving your support to:
- Club Rainbow – It is an organisation that helps children and families who are diagnosed with chronic illnesses. They do accept cash and goods as donations.
- Metta Welfare Association – It’s about the medical support given to children and special needs. They, too, accept cash and goods.
- Singapore Red Cross Society – They provide emergency services for the disabled and the neighbouring countries. Both types of donations are accepted.
- Blessings in a Bag – They empower youths and underprivileged children.
- Singapore Children’s Society – It helps families in need.
Summary
Getting your business involved in donating to charitable causes is a great way of setting an example to show that humanity still exists.
On the other hand, by engaging in charities and helping people in need, you are also, in a way promoting your own business. Nevertheless, keep in mind that no matter how big or small your donation is, it needs to be recorded right away.
If you are still not sure how to manage the bookkeeping for all your donations, you should appoint a good accounting and taxation consultant. Being experts in the field, they would be able to guide you on how to record the donations but also how much and where.
