During Kelli Marks's first year in business as the owner of Sweet Love bakery in Little Rock, Arkansas, she made a point of saying "yes" to nearly every request for donations to community events and causes. A fellow business owner had advised Marks that donating her cookies, cakes and cupcakes to support local organizations was a smart marketing strategy, claiming that she could write off the full value of those community donations. So Marks did just that: She made custom cookies with logos on them for charitable events, and prepared cupcakes and cakes for local groups.
In all, she calculated that by year-end, her bakery had donated more than $4,000 worth of products. Unfortunately, when Marks handed over all the paperwork related to her charitable giving to her accountant, she was crushed to learn that she could only write off the cost of the materials used to bake the products, not the retail value. So instead of breaking even with all her marketing, the baker learned she had a loss.
"That's when I had to re-evaluate who I donated to," says Marks. Unfortunately, it couldn't be everyone who asked. "I had to be choosier."
Before deciding on a new community donations strategy, Marks studied other businesses and found that there were a few possible approaches to evaluating requests:
1. Donate the Same Item to Everyone Who Asks for a Contribution
Some companies say "yes" to every request for support, offering a standard item, whether that be a dozen cupcakes or a certificate for a free catered meal.
2. Give Cash
To help ensure the full value of your donation is tax deductible, you could consider giving cash directly to the causes you want to support. However, Marks recognizes that, "many businesses don't have cash to give," which is why in-kind donations are more feasible.
3. Set a Budget for Community Donations
Some businesses budget a percentage of gross revenue or profits for charitable contributions. When these companies reach their annual limit, they simply stop making donations until the following year.
4. Limit Your Donations to Organizations That You Personally Support
Marks settled on this approach, which enables her to provide more support to the Arkansas Children's Hospital, where her sister was treated, and to Animal Village, where her friends serve on the board, rather than giving away money to dozens of other causes.
5. Consider Events or Organizations in Terms of Influencer Involvement
Marks participated in some events where she knew her cakes would be sampled by people in a position to bring her new business. She viewed this as a marketing expense.
"It's tough because you want to help everyone," she explains, "but you'll put yourself out of business if you give to everyone."
In the end, Marks says, deciding how to support community organizations comes down to determining which contributions will have the greatest impact, whether that involves leveraging your skills for an in-kind donation or simply writing a check. As always, check with a tax professional regarding the tax implications for donations specific to your business.
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