Charitable contributions generally equate to a tax deduction. Many of us are interested whenever there is a new deduction, or the poise of a new deduction, and we suddenly are on the edge of our seats awaiting the release of this new information. We then hear the message, and we are free to choose to take the new deduction, or let it pass. The part of the charitable contribution is in relation to a Corporate Owner who contacted me with a question on her taking the charitable contribution. Specifically, she inquired about how she, an attorney, donated three estate planning packages to charities, and now would like to receive the tax deduction amount. On top of it all is a request that she have the entries associated with the donations to plug into QuickBooks, then receive the proper tax credits.
First, we must gain an understanding from the client that she is really attempting to place her Company within the guidelines that were set by the Internal Revenue Service (IRS) for having the proper deduction, not credit. This is a common nomenclature error of the tax code. Either way it is all spelled out within Publication 526, Charitable Contributions which is the guidebook, provided by the IRS, to having a valid and certain deduction. The important part is that this is through a qualified charitable organization.
Now let us check out what is expected when we properly take the deduction for the charitable contribution. We will focus on one transaction with a $100 of charitable contribution. When complete we can true up the amounts by multiplying the actual contribution amount by three. Therefore: the journal entry would be as follows for the initiation of the contribution:
Charitable Contribution
$100
Deferred Revenue
($100)
The Client meets with an Attorney and the Corporation earns the Contribution:
Deferred Revenue
$100
Other Income
($100)
This methodology will provide the best form of the deduction to utilize as a charitable contribution. Do be aware of the need to adjust the excise tax report for donating to a Charity. There should be no additional tax that was due on the charity contributions. There may be some additional criteria that must be met by the IRS, but for our purposes we are complete with the transaction.
The attorney is now free to make charitable contributions, to support the betterment of society, and for having a valuable service that is being provided by a trained professional attorney. The addition of these types of services will lead us to become better educated, and a more competently trained individual that will capitalize on their opportunities that they encounter with these valuable skills. These are just a few of the many benefits of having a professional provide a charitable contribution.