Most of us have contributed towards fundraisers at some point in our lives, but if you’re a dentist or dental practice owner, did you know that you can structure your donation in such a way that it helps lower your tax liability?
Many dentists are generous with their profits, and often (indeed regularly in many cases) give back to their communities in the form of charitable donations. But all too often, tax write offs for dentists are left on the table because the good deeds weren’t structured in the most tax-efficient way.
Here’s how to structure charitable giving as a dentist, and maximize tax savings:
Choosing whether to sponsor, or donate
It helps to view sponsorship as more of a business deal; with advertizing involved and you standing to gain something from it, when structured correctly, it can be classed as a fully deductible business expense.
Donations on the other hand, are specifically gifts, and cannot be classed as a legitimate business expense. Instead, it will be deemed a personal charitable contribution by the IRS, and subject to its own limits.
The distinction between sponsorships and donations is made abundantly clear by the IRS, and while both are deductible, the rules that must be followed are different.
How to make your sponsorship qualify as a deductible business expense
From the IRS’s perspective, an element of promotion must be present in the act of sponsorship in order for it to be eligible as a business expense, which means that the following must apply:
- The logo or name of your practice must be visible
- You must be listed on signage or materials associated with the event
- A valid connection can be established between your target market and the audience
Giving out branded items at an event can count as a business expense, donating money with no mention of your practice’s name; that’s a charitable donation.
What can be deducted, and what can’t?
Here’s what you can deduct as a marketing or business expense:
- Banners, and branded or promotional items
- Sponsorship fees
- Travel or mileage if tied to the event directly
- Booth costs
Here’s what you can’t deduct as a marketing or business expense:
- Contributions made with no benefit to marketing
- Anonymous donations
- Personal costs
The importance of holding on to receipts
If you plan to write something off and benefit from a tax reduction for dentists, you must document it and store it safely. Here’s what you should save:
- Screenshots of your name in event materials
- Notes explaining the purpose
- A copy of the invoice or sponsorship agreement
- Photos of booths or signage
Even if you simply enjoy giving back to your community as a dentist, and had no idea that there were tax saving opportunities to be gained from doing so, once you know that it can help lower your tax bill, you might as well take advantage of it, right? All you need to do is treat sponsorships as marketing opportunities, and with the right supporting documentation and professional guidance from specialist dental tax experts, you can do something valuable for your community, and reduce your tax bill.