Today’s market and economic landscape can be challenging to navigate, especially for small businesses. In the face of rising costs and staff shortages, businesses are also adjusting to changing consumer expectations and increasing competition among their peers. Adding nonprofit event sponsorship to your business’s defense strategy can provide significant benefits. Not only can it help your business increase brand awareness and improve customer loyalty, it can also help you generate more leads, improve sales, and leverage tax-saving opportunities.
When you give back to your community, you increase your brand awareness and your customers are more likely to remain loyal.
Today’s consumers expect businesses to be socially responsible. Many consumers, particularly among younger generations, vet businesses ahead of buying their products to ensure their stances align on specific social responsibilities, such as ethical labor practices, diversity and inclusion, and corporate philanthropy. According to a study by Cone Communications, 87% of consumers surveyed said they would purchase a product because a company advocated for an issue they cared about.
Because corporate philanthropy has become increasingly important to consumers, sponsoring an event can set you apart from your competitors. When your business sponsors an event, your name becomes associated with the event by the media, customers, and attendees. So by supporting an organization with a mission your business is passionate about, you can increase your business’s brand awareness and even improve customer loyalty.
When you target a like-minded organization, event attendees are more likely to be potential customers. For example, if your business sells running shoes and apparel, sponsoring a nonprofit run increases your exposure to individuals who are likely to be interested in your products.
Depending on the specifics of your situation, your event sponsorship payment may be tax-deductible as either an ordinary and necessary expense or a charitable contribution.
Often, nonprofit organizations include sponsors’ names, logos, and slogans in print material, such as event programs, brochures or other fundraising materials. Often, you or the nonprofit may also distribute or display your products at the event. So when businesses sponsor an event, generally, the primary underlying purpose is advertising, and advertising is a tax-deductible ordinary and necessary business expense.
When a business’s primary underlying intent is to make a gift to an organization, the sponsorship is a charitable contribution. However, this is only the case when a donation is made with no expectations in return.
In some cases, a payment could potentially be eligible for deduction under either provision, which allows the corporation the opportunity to choose the deduction that provides the most tax savings. While the CARES Act temporarily increased the corporate charitable contribution deduction limitation to 25% of taxable income, and even provided a 100% deduction for contributions made to qualified charities, the limit has returned to 10% of taxable income for 2022 for C-Corps while pass-through entities such as S-Corps pass the contribution to the shareholders which then are deductible following the ordinary charity limits for individuals. So if your C-Corp business’s taxable income for the year is $100,000, your charitable contribution deductions for the year would be limited to $10,000 of that taxable income. Businesses should consider their other charitable contributions in conjunction with this limitation in determining the deduction that provides the most benefit.
If your business is claiming a charitable deduction for a sponsorship of $250 or more, you must have a written acknowledgment from the nonprofit that includes:
- the amount of cash and a description of any non-cash gifts you contributed
- whether the nonprofit provided any goods or services in return for your contribution
- if so, a good faith estimate of the fair market value of those goods or services
Bank records, credit card statements, and a less formal communication, including the nonprofit’s name, your business’s name, the date, and the contribution amount, will suffice for a sponsorship contribution of less than $250.
As a condition of their sponsorship, some businesses receive additional perks, such as complimentary tickets, a place in a tournament, or major donor receptions. The fair market value (FMV) of some of these perks must be subtracted from the total amount of your contribution when calculating your tax deduction. In this case, the deductible amount is the amount of your event sponsorship payment that exceeds the FMV of any goods and services you received in exchange.
Contact Smith, Sullivan & Brown
At SSB, our services go above and beyond general accounting and tax compliance. We are committed to helping small businesses develop new and improved strategies for success. Our professionals help small businesses maximize the benefits and navigate the complexities of event sponsorship. If you have questions or want to learn more, contact us today.
Maureen Sullivan manages SSB’s small business and individual accounting and tax services. She joined the firm in October 2001 and was admitted as Partner in January 2009. Maureen is also responsible for supervising SSB’s peer review program and ensuring the firm remains in compliance with industry-wide standards.