Recording Charity Donations in Bookkeeping

Small businesses like yours can leave a big impact on the local community.

Other than earning profits, giving back to society can bring about both environmental and social benefits. When it comes to donating, there are various causes and organisations available for contribution. While your business can simply contribute cash, some charitable organisations also accept non-monetary items including real estate, personal property, or stock. Regardless of the form of your donation, you are eligible for a tax deduction. However, documentation is crucial in tracking your charitable donations.

Fret not, for this article delves into how you can record donations in bookkeeping. If you need immediate help, simply reach out to our experts at Osome and you’ll have books that are up to date in no time.

Why Should I Donate?

Charitable giving has remained heightened this year,

• Set your business apart from the competition: Today's discerning consumers are constantly on the lookout for products and services from organisations that give back to society. If you are pitching for a potential client alongside other companies, you could set yourself apart from the rest with your corporate philanthropy or socially responsible behaviour.
• Reputation and publicity: For a small business, reputation is of utmost importance. From human resources to your sales, reputation affects everything. With a purpose and commitment to giving back to society, you can create a good reputation for your company. Furthermore, your company's philanthropic stance can favourably portray you in the media, attract publicity, enhance visibility, and contribute to your company's growth.
• Tax deductions:  Regardless of your company structure – whether it is a sole proprietorship, Limited Liability Company, partnership, corporation, or cooperative – making charitable contributions reduces your tax liability.

What Is a Donation?

A donation is a gift for humanitarian aid, charity, or to help a cause. A donation may come in various forms such as money, services, alms, or goods including toys, clothing, food, or vehicles.

Your business is eligible for a tax-deductible donation to a qualified organisation with a corresponding tax deduction. For every dollar you spend, you will get SGD 2.50 deducted from your taxable income. In a nutshell, you will receive a charitable contribution deduction of 250% for every eligible donation made to the approved Institutions of Public Character (IPCs), until 31 December 2023.

When donating, your business should provide your company name and tax reference numbers (i.e. NRIC/FIN/UEN) to the approved IPCs. The IPCs will subsequently provide the Inland Revenue Authority of Singapore (IRAS) with your donation details so that your donation’s tax deduction will be automatically included in your tax assessment.

How Do I Record Donations of Cash, Goods, or Services?

Regular accounting is simple, but what about recording donations?

When you donate, the way you record them is dependent on the type of donation. For instance, recording the donation of products or services is different from recording a monetary donation. Here’s how you can record them accurately.

Donation of the goods or services that you sell

1. Calculate the value of the intended goods or services to be donated

If you are intending to donate the goods or services that you sell, you will have to work out the fair market value of these contributions. This means that you will have to take into consideration the amount that someone in the open market will be willing to pay for your goods or services.

If the amount you intend to contribute will drastically affect your profit margin, you should consult your accountant before the donation.

2. Send an invoice to the charity organisation

Create and send an invoice to the charity organisation to document the goods or services that you contributed. Create an expense account for donations, then start an entry in your accounting system to jot down the donated goods or services. This entry can be defined as a 'charitable contribution'.

3. Issue a credit memo to the charity organisation

Issue the charity organisation a credit memo as a customer. This will cross out the invoice that you sent to the charity organisation, and reflect the amount that you contributed. Lastly, ensure that the credit was properly applied to the invoice.

Donation of cash

For cash donations, you can set up the charitable organisation you are contributing to as a new supplier. When you contribute, you can simply record it as a bill, payment, or write a cheque, as you would for other supplier payments.  

Then, create an expense account dedicated to tax-deductible contributions. This account will show up on your company's income statement.

Ask for an acknowledgement

After contributing to a charitable organisation, ask for an acknowledgement letter from them for documentation with your other records of the donation. This is applicable regardless of whether your contribution is in cash or a non-monetary form.

How Do I Keep Track of Donations?

As you make charitable contributions throughout the year, it is crucial to building a system to track them. This is because when tax season approaches, the same questions will arise – did you make charitable donations? Definitely. Did you track that contribution? Probably not well enough.

Spare yourself the headache and start keeping track of your donations. Here are various ways to do so:

• Outsource: Forget doing it yourself — let Osome take charge of your bookkeeping, including the reconciliation of donations and preparing of books
• Make use of spreadsheets: If Microsoft Excel or Google Sheets are already your best friends, why not create one for your charitable donations too? You can simply record your donations every time you contribute, so everything can be tracked properly.
• Digitisation: Make it a habit to scan every receipt and document. Then, create a folder and keep this documentation in a folder. When it comes to tax season, simply refer to the documents saved on your computer. Also, get rid of redundant files to avoid clutter and the device so you can find and manage important data more efficiently.
• Old school: If you are more traditional, simply record your donations with pen and paper, but be sure to keep them safe.
• Use apps: Phone apps could be another way for you to stay on top of your donations. Since it's so easy to simply record an entry directly on your phone, your donations can be stored in one place and you can avoid scrambling to find all your charitable donations for the year when tax season approaches. Here are some of our recommendations:
  • Givelify: Givelify provides an easy way to instantly track your donation amounts. Additionally, you can give a yearly statement for tax purposes if you require.
  • Kindred: Kindred is a social enterprise started to encourage charitable donations through daily purchases, supporting over 20,000 causes and charities. With over 30,000 brands on its website and extension, shoppers can shop online, enjoy offers, get cashback and contribute a percentage of that cash back to a chosen charity

How Do I Calculate My Tax Deduction?

Calculating your tax-deductible donations is easy, simply follow these steps:

Step 1

Download the Taxable Income Calculator from IRAS.

Step 2

Update the calculator with your taxable income, personal reliefs, and rebates.

Step 3

Fill in the donation amount.

(e.g. If you have donated $200, multiply this amount by 2.5 times and enter the amount as $500)

Step 4

The net tax payable will be automatically calculated.

What Donations Are Not Tax Deductible?

According to IRAS, donations are not tax deductible if:

• The donation is meant to advertise at the IPC facility, programme, or event. If you display your products, banners, or other collaterals at the IPC facility, programme, or event, it will be deemed an advertising or marketing expense instead of a donation.
• The donation or gift is meant for a foreign charitable purpose, such as a donation made to overseas relief funds managed by an IPC.

What Charity Organisations Can I Donate to?

No matter how big or small your donation is, you can change someone's life for the better. You can donate to the following charity organisations:

1. Club Rainbow

Club Rainbow supports and empowers children with chronic illnesses and their families, so they can have hope for the future.

Accepted donations: Cash, or donations-in-kind including diapers, food, milk formulas etc

2. Metta Welfare Association

Metta Welfare Association is a holistic organisation that provides child care, medical, special education and disability care services. They go beyond religious and racial barriers to support the less fortunate.

Accepted donations: Cash, or donations-in-kind including electronics, groceries, clothing, motor car policy etc

3. Singapore Red Cross Society

Singapore Red Cross Society provides emergency services and training for the disabled, and actively provides relief efforts for neighbouring countries.

Accepted donations: Cash, or donations-in-kind including milk formulas, adult diapers, mattresses etc

4. Blessings In A Bag

Blessings In A Bag aims to empower youths and deliver blessings to underprivileged children. They also provide services in terms of legal support, graphic design, and education.

Accepted donations: Cash, or donations-in-kind

5. Singapore Children’s Society

Singapore Children’s Society reaches out to families in need, children, and the youth. They protect and nurture children and youth of all races and religions.

Accepted donations: Cash

Save Time on Bookkeeping and Concentrate on Giving Back

Giving to a charitable cause can make a huge difference in the community. However, when it comes to paperwork and tax requirements, it might be a paperwork nightmare.

At Osome, we provide bookkeeping services for busy entrepreneurs online. Forget doing it yourself — we automate invoice reconciliation and prepare books for accounting reports, so you can focus on giving back to society.