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.
In: 2
Generally, people and companies **aren’t** taxed according to the money they *receive* – they are taxed according to the money *left over after paying for “reasonable” expenses*. Reasonable expenses might be mortgages or healthcare for people, and include equipment costs and salaries for companies. So the higher your expenses, the less money left over to count as “taxable” profit.
Because it’s good for a society if people are charitable, governments allow both people and companies to count charitable donations as additional “reasonable expenses”. Usually it’s not exactly dollar-for-dollar, but at least some of those donations help reduce the taxable profit.
Some additional commentary – ~~the charitable drop boxes and change boxes at stores allow the store owners to donate money that really was never really theirs.~~ It’s still morally good to give, ~~but if you want to give while helping yourself too, then it’s better to donate directly to charities and claim those as your personal expenses~~. edit: corrected below
Latest Answers