Tax and Corporate Sponsorship
As business owners, we are usually involved with not-for-profits. And their mission is to raise money for their charity. So, they prevail upon businesses that are sympathetic to their cause to raise money by offering sponsorships. However, there is often confusion between sponsorships and donations. Is business sponsorship the same as a donation? No, but you need to understand the tax implications of corporate sponsorship.
We are often asked this question and feel it is essential that business owners understand the difference.
Takeaway – Sponsorships and donations can be cash or in-kind (goods and services). However, there is a vast difference.
- Sponsorships are more of a marketing technique putting a company’s name on an event or ad to boost revenue.
- Donations are charitable and purely benefit the organization at hand.
What is a corporate sponsorship?
A sponsorship ensues when a business donates toward the cost of a charity’s activity or event, and, in return, the charity advertises or promotes the business’s brand, products, or services.
There are four types of sponsorship for you to be aware of:
- Financial sponsorship – you are giving money in return for recognition and promotion of your brand.
- In-kind sponsorship – the sponsor donates services or products free of cost.
- Media Sponsorship – involves the promotion of another’s activity. The promotion can occur as posts on social media accounts, publishing of blog posts, and sharing information via broadcasting.
- Promotional Partners – like a media sponsorship, promotional partners generally include individuals, such as social media influencers and bloggers, who promote an activity or event across various communication platforms.
What is a business donation?
Here’s what you need to know about charitable giving and business tax deductions.
- Charitable contributions from businesses to nonprofits can qualify for tax deductions.
- Donate to charity because you feel connected to an organization, not because you want a tax deduction. There’s more to charitable giving than receiving tax benefits.
- Regarding the paperwork and tax requirements for charitable contributions, it’s often easiest to speak with a tax advisor.
More about tax and corporate sponsorship
Are sponsorship donations tax-deductible?
One of the rules that the IRS uses to determine if a sponsorship qualifies as a deduction is whether you receive advertising in exchange for the sponsorship. However, it’s okay for the entity that gets the sponsorship money to recognize your company for your donation, but they cannot advertise your product or service.
Do you have to pay taxes on sponsorship money?
Sponsorship dollars are not taxed. The IRS allows exempt organizations to use information that is an established part of a sponsor’s identity, such as logos, slogans, locations, telephone numbers, and URLs. There are some exceptions.
Do you have to claim sponsorship money on taxes?
The IRS focuses on whether the corporate sponsor expects to receive a “significant return benefit” for its payment. If so, the amount will result in taxable income for the nonprofit reported on IRS Form 990-T.
Tax and Corporate Sponsorship
So, can a business write off 100% of donations?
A C Corporation may deduct qualified contributions of up to 25 percent of its taxable income. Contributions that exceed that amount can carry over to the next tax year.
An entity taxed as an S Corp. or a partnership does not deduct the contributions. Instead, they are passed through to the shareholders or partners. If they can, the deduction is based on their own tax situation. For example, the company does not deduct the expense if your business is taxed as a sole proprietorship (even if it is an LLC). Instead, it is deductible by the owner on their own Schedule A.
Enrolled Agent Jeffrey Schneider, EA, CTRS, ACT-E, and his team are available to assist you with any of your tax preparation of outstanding tax filings, federal or state. Contact us today at https://sfstaxacct.com/contact/.