I always hear how corporations only donate to write off on their taxes. But how does that make sense? They don’t keep the money, it’s gone – they’ve given it away.
Does the government say “if you donate x amount of money, we will reduce your tax rate by x percentage”? This is the only explanation that makes sense to me, but from what I’ve read that’s not the case.
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If a company is privately owned by a single person or family, then sometimes it can simply be because there’s a cause that they believe in and want to give money to.
Publicly traded companies, on the other hand, are supposed to act in the financial interests of their various shareholders, so they aren’t supposed to give away money just because the executives want to. Usually their charitable donations form part of a marketing campaign. They might mention the donations in their advertising or in their product branding, and they might secure an agreement from the charity that the charity will publicly recognise their support.
> Does the government say “if you donate x amount of money, we will reduce your tax rate by x percentage”?
There are schemes like this, but usually they’re set up so that the amount of money you save is less than the amount you gave to the charity. The point is to make it that little bit more attractive to donate money to charity, since your money goes further. e.g. you might be able to tell everyone that you donated a million to a charity, when effectively you only actually spent 700 thousand.
Having said that, it also isn’t unheard of for people to abuse charities to evade taxes or give money to non-charitable causes. For example, in my above example, suppose instead of giving the 1 million to a reputable charity, you give it to a fake charity that just gives the money back to you. Now you’ve saved 300 thousand on your taxes. This kind of thing is generally illegal, but it does happen sometimes.
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