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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Okay let’s say Company made $50M this year. That’s after their bills and employees are paid. They’ll be taxed on that $50M, let’s say 20% (not the actual number in the States, but corporations are taxed a flat rate no matter the income, but only on operating revenue) so their tax liability is $10M. That leaves them $40M in profits.
Alternatively they have that $50M and give $6M to charity. That gets knocked off their taxable income so now they’ll be taxed on the $44M. The tax liability for that is $8.8M which leaves them $35.2M. That’s precisely why charity is deductible, because it goes toward things that benefits society and at the end of the day costs a company more than not donating.
But it also looks good if they gave up $6M (more than 10%) of their profits to help causes. Makes people like them.
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