While year-end giving can be a gesture of goodwill, it can also be a crucial part of reducing the tax burden associated with running a business. Here are some considerations for design practitioners to best direct their charitable intentions.
What—and How Much—You Can Deduct
To qualify for tax deductions on charitable giving, organizations and individuals must make their donations by Dec. 31. But before tallying up every philanthropic gesture, architecture firms should be aware that not all giving qualifies for a deduction, which may affect how much a firm chooses to donate.
For design firms that are classified as C corporations, the revenue of the business is taxed separately from that of its owners. Tax laws limit deductible donations from these entities to 10 percent of taxable income of the entire business, says Joe Schneid, a certified public accountant partner at Aldrich CPAs + Advisors, in Portland, Ore.
Direct giving, be it in the form of cash or property, is the best way to take advantage of the 10-percent deduction allowance. However, Schneid says this form of charitable giving is relatively uncommon: “Most architecture firms are operating on a cash basis, only paying tax when they collect receipts. They tend to try to keep their taxable income low each year by paying out bonuses.” That can mean they leave less money for charitable giving.
Donated services, such as pro bono design work or volunteering with nonprofits such as Habitat for Humanity, do not qualify for deductions. But, Schneid says, “if you volunteer a day of time or if you have a couple of your staff members work on a project, you can still deduct it as overhead,” referring to expenses incurred during the donation of those services, such as the cost of supplies or travel.
Employee Bonuses as Donations
Some firms opt to use their employees as a funnel for their charitable giving at the end of the year. Because individuals can deduct significantly more than C corporations—up to 50 percent of their income—firms can direct money for donations through employee bonuses. “The firm issues a bonus to John Smith and he makes the donation in the name of John Smith at architecture firm XYZ,” Schneid says. Thus, the firm gets the recognition and the employee gets the tax deduction.
This strategy is common when giving is part of the firm’s culture, and the firm’s leaders are involved in making donations and encouraging employee participation. “As long as the employee is entitled to the bonus and is not legally obliged to make the contribution, then it’s fine,” Schneid says. “If the employee and the firm are of like mind, then they can make that work.”
Give Back to the Design Community
Not all giving has to be tax related. New York–based CetraRuddy directs its giving to the field itself. Principal and co-founder John Cetra, FAIA, says the firm has contributed to organizations like the Municipal Art Society of New York, the Architectural League of New York, and the local AIA chapter. But, after some time, the firm wanted to do more. “We wanted to do other things where we could see some direct impact,” Cetra says.
That led the firm to endow two graduate design studios at the Bernard and Anne Spitzer School of Architecture at the City College of New York, from which Cetra and co-founder and principal Nancy Ruddy graduated. He says the school had a huge guiding influence on the firm's work and approach to architecture and wanted the next generation of students to benefit from a similar experience.
“We helped formulate the [studios'] program,” which focuses on housing and community building, Cetra says. “We’re also involved with the students. They come to our office, and we go up to the school for [critiques].”
Cetra wouldn’t disclose the amount of the donation the firm provided, but noted it is in the thousands. “We didn’t do it for tax reasons or anything like that,” he says. “It was just we can do this, we can afford to do this, and we’re going to start doing it.”
And the firm is looking beyond college students majoring in architecture. They have also partnered with a local nonprofit called PENCIL, which connects businesses with local public schools in the New York area to expose students to their professional expertise. Architects from CetraRuddy have participated in teaching third graders in the Bronx about design, introducing basic concepts of building and architecture with the hope of planting the seeds for a future career in the profession. “It’s long lasting,” Cetra says. “We’re investing in these young kids’ futures.”
