How does it work when a company supports a charitable event--from a business savvy standpoint? The short answer is, it works quite well. When the company pays for a sponsorship, buys a table at a fundraising event, or purchases tickets to a gala, it usually can be considered a marketing expense--a cost of doing business. That typically makes it deductible to the company for income tax purposes. Plus, many companies recognize that supporting community events is not only a way to support the charity hosting the event, but also an opportunity for employees to socialize for a good cause. This makes celebrating a win win win: a tax deduction, a good cause, and a good time. In fact, event tickets are a popular employee benefit at several innovative companies in our region.
What happens when an individual--rather than a company--purchases a ticket or a sponsorship for a charity event? A good cause and a good time--yes. But the tax dynamics are a little different.
Generally, from the perspective of the individual taxpayer, a tax deduction is possible if you itemize deductions on your income tax return instead of using the IRS's standard deduction. In that case, it is helpful to understand that one of the basic ideas behind the deductibility of donations to charitable organizations is that donations are eligible for a tax deduction on your tax return only for the portion for which you, the giver, receive nothing of tangible value in return for your donation.
Usually the idea of "value in return" is black and white and pretty easy to figure out. You write a check to charity. Or you give stock. Or you make a donation using your credit card. Make a note of the amount of the check you wrote, or the fair market value of the stock on the day you donated it, or the amount you put on your credit card. This is the amount that will be eligible for a tax deduction, depending on other tax factors. The charity will send you a letter confirming that amount, if the amount is over $250.
When you contribute to an organization by buying event tickets, however, the rules are a little more challenging. When you buy a ticket to attend a charity event, some of that ticket amount is deductible and some of it is not. That's because the IRS views attending an event as receiving value in return. To compute the deductible portion of your ticket, the charity will start with the price of the ticket, and then subtract the fair market value of the benefit you will receive at the event--food, beverage, entertainment, t-shirts, and gifts. The amount that is left is what you are eligible to deduct on Schedule A of your Form 1040. Most of the time, you do not have to do the math yourself. When you buy a ticket to a charity event, the charity should give you the information about how much of the ticket price is deductible and how much is not.
Complicated? A little. But what's the most important part to remember? That's easier. Just because you don't get to deduct the entire amount, the charity is probably still able to use most of your ticket price to fund its mission. This is because typically the charity hosting the event has secured in-kind sponsors for a lot of the event expenses. For instance, a wine distributor donates the wine, a band donates its time, a t-shirt company donates the t-shirts, a deli donates the chicken. The tax laws still say, though, that no matter how many of these things were donated to the charity, you, as the attendee, nevertheless benefited from the fair market value of all those things. Essentially, that portion of the ticket price is a purchase by you from the charity, not a donation to the charity.
Celebrating your favorite cause by attending charity events is a great way to give back and do good. With or without the tax deduction.