If you`re a business owner, you may have heard of a 113 agreement. This is a type of agreement between a business and a non-profit organization, which allows the business to receive tax credits for donating to the non-profit.
The 113 agreement gets its name from the section of the tax code that governs this type of transaction, specifically section 170(b)(1)(A)(vi). The agreement is also sometimes referred to as a «charitable donation agreement» or a «business donation agreement.»
To understand how a 113 agreement works, it`s important to understand a bit about tax credits. When a business makes a donation to a non-profit organization, they may be eligible to receive a tax credit for the value of that donation. This credit reduces the amount of taxes the business owes.
The IRS sets guidelines for what types of donations are eligible for tax credits, as well as the amount of the credit. For example, a business can typically receive a tax credit of up to 50% of the value of their donation.
A 113 agreement takes this a step further. In this type of agreement, the non-profit agrees to use the donated funds in a specific way that benefits the community. This could mean funding specific programs or services, such as education or health care.
In exchange for this targeted use of funds, the business receives an increased tax credit. The exact amount of the credit will depend on the specifics of the agreement, but it can be as high as 3 times the value of the donation.
So, why would a business choose to enter into a 113 agreement? There are a few potential benefits:
1. Increased tax savings: By receiving a higher tax credit, the business can reduce their tax burden even further.
2. Positive PR: By making a targeted donation to a non-profit, the business can demonstrate their commitment to the community and potentially earn positive publicity.
3. Opportunity to make a difference: By working with a non-profit to fund specific programs or services, the business can have a direct impact on their community.
It`s worth noting that entering into a 113 agreement requires careful planning and consideration. The non-profit must be an eligible organization, and the agreement must be structured in a way that meets IRS guidelines. Business owners should work with their accountant or tax professional to ensure that the agreement is structured correctly and that they understand all of the potential tax implications.
In conclusion, a 113 agreement can be a valuable tool for businesses that want to make a difference in their community while also receiving tax benefits. By working with a non-profit to fund specific programs or services, businesses can show their commitment to the community while also reducing their tax burden. If you`re interested in exploring this option, be sure to work with a qualified professional who can help you navigate the process.