By Dave DeWitte
Philanthropy is one arena in which emotion can easily run away with us: After all, don’t we all deserve to follow our heart in deciding where our giving is needed most?
In business philanthropy, however, there are more factors to be considered. There can be more “asks,” more stakeholders on the donor side, more tax considerations, and more business relationships to be sweetened or soured.
Planning can go a long way in helping companies and business owners make their philanthropy more effective. The Corridor Business Journal asked some local experts what business philanthropists need to know to get the most impact from their donations.
The most popular recommendation from our experts was to apply for the Endow Iowa Tax Credit when possible.
The Endow Iowa Tax Credit is a 25 percent tax credit for gifts to nonprofits channeled through a qualified community foundation in Iowa, such as the Community Foundation of Johnson County or the Greater Cedar Rapids Community Foundation.
While a tax deduction reduces how much taxable income you claim, a tax credit directly reduces how much you owe.
“A credit is dollar-for-dollar,” said Gordon Fischer, an Iowa City attorney specializing in philanthropy who was formerly vice president of gift planning strategies at the Community Foundation of Greater Des Moines. “It’s almost like a gift card for your taxes.”
If your tax credit from Endow Iowa is more than your tax liability this year, it can be carried forward for five years to apply to future returns.
To be clear, there’s a bit more fine print to the Endow Iowa program. No more than 5 percent of the gift can be distributed to the charity by the community foundation each year.
Community foundations will typically invest the gift so that it grows while proceeds are being distributed at the 5 percent rate, said Michael Stoffregen, executive director of the Community Foundation of Johnson County.
“We don’t dip into the principal,” Mr. Stoffregen said. Even during the stock market swoon of 2008, the endowed gifts kept on giving.
“We are viewed as forever,” he added.
Community foundations do assess a modest fee to cover the costs of handling, investing and distributing the gift. Also, it’s advisable to apply for the Endow Iowa Tax Credit in the first nine months of the year, because the state currently awards only about $6 million worth of credits annually, and they run out towards the end of the year, Mr. Stoffregen said.
Consider a donor-advised fund
Unless a business or individual has truly huge giving plans (think millions), setting up an individual foundation typically doesn’t make financial sense because of the many expenses involved in creating and managing it, Mr. Fischer said.
Community foundations have donor-advised funds that offer some of the same advantages, in terms of directing a donor’s giving to achieve maximum impact in the areas in which they want to make a difference.
“Most corporate gifts are through donor-advised funds,” said Les Garner, president and CEO of the Greater Cedar Rapids Community Foundation. “Donors retain the ability to make recommendations on where the money goes.”
Depending on how involved the donor wants to be, the foundation’s support can be almost like outsourcing their philanthropy, Mr. Garner said.
Some corporate donors like to have competitive grant cycles. The foundation can solicit applications, collect them, organize them for corporate review and provide additional background research the corporation might want or need to make a decision.
“For all of our corporate funds, we do a lot of the back-office preparation,” Mr. Garner said. That includes such things as checking the current 501(c) nonprofit incorporation status of the recipient organization to ensure that the gift is tax-deductible, and in the case of large gifts tied to particular projects, ensuring that the projects were performed as represented by the nonprofit.
Having the foundation involved in an endowed gift can be a great way for businesses to “manage the asks,” Mr. Stoffregen said. The donor knows how much will be distributed every year, and an organized process can be created to allocate it among specific criteria.
Use appreciated assets
“Don’t give cash,” said Mr. Fischer, who noted that almost any kind of gift has more tax advantages than giving cash, because cash is essentially a post-tax asset, all ready to spend.
The most tax-advantaged way to give is to gift appreciated assets, Mr. Fischer said. Many philanthropists have assets such as stock in a company or real estate that have increased significantly in value over that time.
If the owner sells that asset in order to make a cash contribution, they will be required to pay capital gains tax on the increase in value. But a nonprofit that receives the appreciated asset can sell it without paying the capital gain. Better yet, the contributor still gets to use the federal gift tax deduction.
Align giving with goals
Businesses have a symbiotic relationship with the communities in which they operate. Aligning the company’s philanthropy with the changes it wants to see is one way to make philanthropy go farther, Mr. Garner says. Community foundations can help.
“I think corporations are being more strategic about their giving, thinking about what their broader long-term objectives are for their corporation and for the community,” Mr. Garner said. “We want to make sure their giving is fully informed.”
Perhaps the business relies on service workers who can’t afford the type of housing available in the community, requiring them to commute 20 miles to work each way. One valid use of philanthropy might be to support organizations that develop affordable housing options so that employees can live closer to work.
Research administration costs
It costs money to get results, but sometimes the administrative costs of a nonprofit can be out of line with the results they are producing, or the costs other organizations incur to achieve similar results.
“You can research administrative or overhead costs on websites like Guidestar and Charity Navigator,” Mr. Fischer said. “It’s also good to talk to an advisor. They may be able to get you information that’s not readily available.”
Community foundations also tend to be wired into what’s transpiring in the local nonprofit world, in terms of which nonprofits are producing good results and leveraging available assets, Mr. Garner said.
Overhead costs – whether high or low – don’t tell the whole story, however. Mr. Fischer explained that a nonprofit could have high overhead because they have an experienced and talented staff that really knows how to get the job done.
“Low overhead doesn’t mean they’re impactful, and high overhead doesn’t mean they’re not impactful,” he said.
Follow your dreams
Lastly, Mr. Garner advises business leaders and owners to set their own vision for giving instead of simply responding to what can become a relentless stream of “asks.”
“A gift driven by your dream is going to be a more meaningful gift in the long run,” Mr. Garner said. “The activity of giving is important for the recipient, but it’s also important to the donor to make a statement about what they believe in, what they consider important and what kind of change they want to see in their community.”
“There’s great power in giving,” he added. “It’s the power to change a community.”