Donating to Charity as a Sole Proprietor?

[Junco]

Greetings.

I have a sole proprietorship small business and am organizing an event where 50% of my proceeds from event registrations will be donated to charity. I am receiving the event registrations via PayPal as income.

My understanding is that as a sole proprietorship, I can not count a charitable contribution as a tax deduction/business expense. I won't meet the Standard Deduction on my tax return so it seems like there is no tax incentive for me to donate.

From a $10 ticket sale, I am donating $5. But then the full $10 will be taxed, so assume $3 to taxes... leaving only $2 profit for me per ticket sale after the donation. Not a great profit after being taxed.

Is there any more tax efficient way to do this as a sole prop?

Thanks,

[Smokystache]

Someone will correct me if I'm wrong, but as a Sole Proprietor your income and taxes are figured simply as part of your "personal" tax situation. So whether you are Junco's Dog Walking Business making a donation to Dog's Haven Forever (a qualified charity) OR Junco S. Juncoson (you as a person) making a donation to Dog's Haven Forever - it all works out the same.

[SeattleCPA]

Greetings.

I have a sole proprietorship small business and am organizing an event where 50% of my proceeds from event registrations will be donated to charity. I am receiving the event registrations via PayPal as income.

My understanding is that as a sole proprietorship, I can not count a charitable contribution as a tax deduction/business expense. I won't meet the Standard Deduction on my tax return so it seems like there is no tax incentive for me to donate.

From a $10 ticket sale, I am donating $5. But then the full $10 will be taxed, so assume $3 to taxes... leaving only $2 profit for me per ticket sale after the donation. Not a great profit after being taxed.

Is there any more tax efficient way to do this as a sole prop?

Thanks,

You don't want to do this the way you propose. The $5 per ticket donation is only a deduction for federal income taxes if you itemize--which you probably don't. And it isn't a deduction for self-employment taxes.

See if you can recast the arrangement so the $5 per ticket just goes directly to the charity.

[Junco]

Greetings.

I have a sole proprietorship small business and am organizing an event where 50% of my proceeds from event registrations will be donated to charity. I am receiving the event registrations via PayPal as income.

My understanding is that as a sole proprietorship, I can not count a charitable contribution as a tax deduction/business expense. I won't meet the Standard Deduction on my tax return so it seems like there is no tax incentive for me to donate.

From a $10 ticket sale, I am donating $5. But then the full $10 will be taxed, so assume $3 to taxes... leaving only $2 profit for me per ticket sale after the donation. Not a great profit after being taxed.

Is there any more tax efficient way to do this as a sole prop?

Thanks,

You don't want to do this the way you propose. The $5 per ticket donation is only a deduction for federal income taxes if you itemize--which you probably don't. And it isn't a deduction for self-employment taxes.

See if you can recast the arrangement so the $5 per ticket just goes directly to the charity.

Thank you! That's what I thought, I appreciate your feedback. I'm going to look into other options for doing this.

[Junco]

It looks like up to $300 is deductible from personal tax returns for 2020 taxes as part of the new CARES ACT. I'm going to take advantage of that to solve this problem. In the future I'll use a different ticketing platform so the ticket price doesn't go to me as "income".

[SeattleCPA]

It looks like up to $300 is deductible from personal tax returns for 2020 taxes as part of the new CARES ACT. I'm going to take advantage of that to solve this problem. In the future I'll use a different ticketing platform so the ticket price doesn't go to me as "income".

that works... but it only "saves" you income tax not the 15.3% self-employment tax...

[Junco]

Ooh good point. Thanks for the clarification. My first event is already in the works using the system I described above. Thankfully my resulting tax burden will not be significant. Lesson learned for next time.