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Tax Benefits of Corporate Donation Matching Gifts: All You Need To Know

Corporate donation matching gifts programs are rising in popularity, and for good reason.

As more companies shift to better business practices and align with corporate social responsibility values, business leaders are looking for more ways to provide employee benefits that also make a social impact. Enter corporate matching gifts programs.

Along with making the world a better place, an added benefit corporate matching gifts programs offer are tax deductions.

In this article, you'll find information on what a corporate matching gifts program is, what tax deductions you can expect from corporate matching gifts as an employer and an employee, and a financial-wellness hack on how to maximize your benefits using donor-advised funds.

What is a corporate donation matching gift program?

A corporate donation matching gift program is a type of charitable giving program in which companies match the donations made by their employees to eligible non-profit organizations.

Corporate donation matching gifts program providers offer experiences that differ in how they streamline the donation experience, consolidate and catalog donation receipts, or give donors access to different features. Those differences include access to a mobile app or access to different tax-advantaged accounts.

Are corporate donation-matching gifts tax deductible?

Yes. Corporate matching gift donations, like independent donations, are tax deductible and follow the same tax deduction rules for donations to eligible organizations.

Tax basics of corporate donation-matching gifts

Corporate matching gift programs offer several tax benefits for both the company and the employees who participate in them.

Matching gifts are tax-deductible expenses and can be deducted from the company's taxable income. This can help reduce the amount of taxes the company has to pay to the government.

For employees, the tax benefits of corporate matching gifts depend on how they make their donations.

Pre-tax donations

The donation is considered pre-tax if an employee donates to an eligible non-profit organization directly from their paycheck through a payroll deduction program. This means the employee's taxable income is reduced by the amount of the donation, and they pay less in federal income taxes and FICA (Social Security and Medicare) taxes.

Additionally, because the matching gift is made by the company, the employee may be able to deduct the entire amount of their donation, including the matching amount, on their federal income tax return.

Post-tax donations

If an employee makes a donation to an eligible non-profit organization outside of a payroll deduction program, the donation is considered post-tax. In this case, the employee can still claim a tax deduction for their donation, but they may not be able to deduct the matching amount made by the company.

It's important to note that the tax benefits of corporate matching gifts may vary depending on the specific laws and regulations in your country and state. It's always a good idea to consult with a tax professional or financial advisor to understand how matching gifts may impact your tax situation.

Using a donor-advised fund as part of your corporate matching gifts program

A donor-advised fund (DAF) is a charitable giving vehicle that allows donors to make a tax-deductible contribution to a fund, which is then used to make donations to eligible non-profit organizations over time.

Many corporate leaders and high-wealth donors channel their donations through their DAF to receive financial advantages.

DAFs offer several tax advantages for donors, including:

  1. Immediate tax deduction: When a donor contributes to a DAF, they can immediately claim a tax deduction for the full amount of the contribution on their federal income tax return, even if the funds are not immediately disbursed to non-profit organizations.
  2. Capital gains tax savings: Donors can contribute appreciated assets, such as stocks or real estate, to a DAF and receive a tax deduction for the full fair market value of the assets. This allows donors to avoid paying capital gains taxes on the appreciation of the assets, which can be significant tax savings.
  3. Simplified record-keeping: When donors contribute to a DAF, they no longer need to keep track of individual donations made to non-profit organizations throughout the year. Instead, the DAF sponsor handles all record-keeping and tax reporting, which can simplify the donor's tax preparation process.
  4. Flexibility in giving: Donors can recommend grants from their DAF to eligible non-profit organizations at any time, allowing them to support charitable causes as their interests and priorities change.
  5. Legacy giving: Donors can name their DAF as a beneficiary of their estate, ensuring that their charitable giving continues after their death.

It's important to note that once funds are contributed to a DAF, the donor no longer has control over the assets and cannot take them back for personal use.

Additionally, DAFs are subject to annual administrative fees, which can vary depending on the sponsor and the size of the fund. As with any tax-related matter, it's always a good idea to consult with a tax professional or financial advisor to understand the full range of tax implications and benefits of corporate matching gift programs and a DAF.

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