Wondering whether your percentage-of-sales donations are tax-deductible?
Our resident tax expert explains it all.
As you probably know, one of the hottest methods of business promotion these days is the giveback promo.
You know, the Tom's Shoes/Warby Parker/Burt's Bees model where every item you buy gives something to someone in need.
It can be a specific percentage of sales, a specified dollar amount, or a certain volume of product
Giveback promos are a great way to do some good in the world while branding your business in a positive way while promoting your business, all at the same! Pretty awesome. No wonder so many big companies are jumping on this bandwagon.
And guess what? You don't have to be a big company to do a giveback promo.
[Tweet “You don't have to be a big company to do a giveback promo.”]Okay, maybe you're not going to give away billions of dollars or shoe the population of an entire village.
But even small and online businesses can make a real difference with a giveback promo.
And no, you don't have to have super deep pockets to make it happen. Because guess what else? Giveback promos can be written off.
Keep reading as Marilyn explains it all. (Including how to, like, actually do a giveback promo.)
Can I Write It Off?
Question: Can I deduct giveback promos as a business expense on my taxes?
Marilyn says:
Absolutely! These can definitely be written off as a tax expense.
As with all write-offs, documentation and recording in your accounting system is key. Make sure to add narrative to your deduction, if any explanation is needed to explain the amount recorded.
[Tweet “With all write-offs, documentation and recording in your accounting system is key.”]How Exactly Do I Do a Giveback Promo?
An example would be a retailer that markets that for every sale of XYZ product between the Monday (12am) thru Wednesday (12pm) proceeding Black Friday, it will give 10% of those sales to the Salvation Army.
In this example, you have to be able to track the gross sales of those products for that timeframe. This can be easily done through your shopping cart detail.
Once you are able to monetize the promo, you should calculate it, document it, and complete the transaction. The payment to the Salvation Army would be classified as a donation expense.
Is Offering a Discount the Only Way an Online Business Can Do It?
Another example might be to promo offer free shipping on orders over $100 for the month of March. In this scenario, your shopping cart would need to be set up to discount off the shipping charge when the customer’s gross sales reached that point.
The accounting for it would be to record gross sales and shipping charges as usual and record the promo shipping discount as a “discount and coupons” expense.
Again, documentation is important here. Your shopping cart should have sufficient reports to document this, but you must store it in your company files for future reference when needed.
Can Write Off Anything at All as a Promotion?
The only kind of promotion that isn’t tax deductible is the donation of services.
[Tweet “#DidYouKnow? Donation of services is the only kind of promotion that isn’t tax deductible.”]For example, you decide to give away an hour-long coaching service for any customer that purchased a course from you. This giveaway involves your time, not money. You can’t write off an amount that represents your time because you haven’t recorded the income for it.
…If you think this doesn’t seem fair, you are not alone.
But look at it like this: If you didn’t record the income, how can you record an expense?
You could alternatively record the income as if the customer bought the hour-long coaching session, and then record the promo expense in the same amount. Talk to your accountant about the best way to record this so that the IRS doesn't come to kill the good vibes you earned from your giveback promo.
The Bottom Line
Giveback promos are a great way to spread the word about your business while doing some good in the world. Just make sure to keep very clear records about it…you know, so that it does your business some good, too.
