If you're feeling generous toward a corporation, take into account the Internal Revenue Service's view of your gift, whether it's in the form of money or property. There's an important tax distinction between for-profit and nonprofit corporations, and gifts in large amounts may incur a gift tax. Before writing the check, or making the transfer, get familiar with the rules on gift taxes and the all-important exclusion amount.
For-Profit and Nonprofit Corporations
Companies and organizations come in many types, but the vital difference, across all state laws and registration requirements, is for-profit and nonprofit. A for-profit company generally is subject to federal and state taxes on the income it receives from clients and customers. A nonprofit is tax exempt, as long as it holds to certain IRS guidelines. From the standpoint of gift taxes -- which are levied on you as the giver -- there's no major difference between the two.
Lifetime Gifts, Estates and Estate Taxes
The IRS wants to know about any gifts of more than $14,000 to any one recipient. If you plan to give a large gift, you need to file Form 709, the Gift Tax Return, and let the agency know exactly how much you gave and to whom. This is true for gifts to for-profit as well as not-for-profit organizations, with three important exceptions: gifts to political organizations, gifts that pay an educational institution for tuition and gifts that pay providers directly for medical expenses. Over your lifetime, and as of the time of publication, $5.43 million in gifts, combined with the value of your estate, is sheltered from estate and gift tax.
Gifts of Property to Corporations
Not all gifts, in the view of the IRS, take the form of a check made out to the recipient. If you give a vehicle to a charitable organization, for example, the fair market value of that vehicle represents the cash value and counts toward the gift tax. This is true of any asset you either give outright or sell to the recipient at a below-market value. The IRS does not consider a gift to be the same as income to the recipient, and the recipient does not have to include the amount in its own taxable income, whether or not it's a for-profit corporation.
Gifts in the Proper Context
The phrase "ordinary course of business" applies to gifts given to a corporation. A gift, in the IRS' view, has to be something special. It's not an incredible price break on wholesale supplies, an extra service added at no charge to a work estimate or forgiven interest on a bank loan. The gift must be made outside of the normal course of business for the recipient; otherwise it's subject to the normal rules on income, sales taxes, federal excise taxes and so on. The gift tax exclusion and thresholds, in that case, don't apply.
- IRS.gov: Form 709
- IRS. "Estate and Gift Tax FAQs." Accessed Oct. 24, 2020.
- IRS. "Frequently Asked Questions on Gift Taxes." Accessed Oct. 24, 2020.
- IRS. "Gift Tax." Accessed Oct. 24, 2020.
- IRS. "Property (Basis, Sale of Home, etc.)." Accessed Oct. 24, 2020.
- IRS. "Gifts & Inheritances 1." Accessed Oct. 24, 2020.
- IRS. "What's New—Estate and Gift Tax." Accessed Oct. 24, 2020.
- IRS. "Frequently Asked Questions on Gift Taxes for Nonresidents Not Citizens of the United States." Accessed Oct. 24, 2020.
- Wolters Kluwer. "Can I Electronically File a 706 - Estate or 709 - Gift Tax Return?" Accessed Oct. 24, 2020.
- IRS. "Where To File - Forms Beginning With The Number 7." Accessed Oct. 24, 2020.
- IRS. "2019 Instructions for Form 709." Page 4. Accessed Oct. 24, 2020.
- IRS. "U.S. Citizens and Resident Aliens Abroad - Automatic 6 Month Extension of Time to File." Accessed Oct. 24, 2020.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.