Donation and tax reduction

One of the ways to reduce the tax paid to the tax office is to make a donation. This applies to entrepreneurs who have adopted a tax scale (general rules) or a lump sum on recorded income as a form of taxation, as well as people who earn income from full-time work or contracts for mandate or specific work.

Who can deduct a donation from income?

In order to calculate the tax, the costs of obtaining it are first deducted from the income earned in a given year. This is how income is obtained, and in the case when the costs were higher than the revenues - a loss. By law, donations can be deducted from your income. As mentioned above, such a deduction is available to persons who settle accounts according to the general rules (18 or 32% rate) and also on the basis of a lump sum on recorded revenues. Entrepreneurs who have chosen to be taxed with a flat tax (19% rate) cannot deduct the donation from the tax base, but in some cases they may recognize the donation as tax deductible costs. Entrepreneurs using a tax card cannot reduce their income tax in any way by making a donation.

When can a donation be deducted from income?

In order for a donation to reduce taxable income, it must be transferred to an organization that pursues public benefit objectives. Such organizations are listed in Art. 3 sec. 2 and 3 of the Act on Public Benefit and Volunteer Work. These are i.a. foundations, associations, social cooperatives or sports clubs. Art. 4 above the act defines the social goals that such an organization should pursue.

Targeted payments are also deductible, i.e. when the person who is to receive help through the selected organization has been indicated. A donation made directly to the person concerned is not deductible. On the other hand, donations made for the purposes of religious worship, for the purposes of voluntary blood donation in the amount of money for the donation of blood, constitute a separate category.

How much can your donation deduct from your income?

Pursuant to the Act, 100% of the amount transferred may be deducted or, in the case of material donations, 100% of the value, although the amount of the deduction may not exceed 6% of the income obtained. Therefore, in order not to exceed this limit, you should first add up the value of donations, and then check that it does not exceed 6% of the income obtained.

The donation may be tax deductible

There are exceptions in which the donations made are tax deductible for the entrepreneur. Such costs may include the costs of purchasing or producing food products (except for alcohol), which were transferred to a public benefit organization intended for charity activities.

There is no value limit for food donation. However, it should be remembered that the documents confirming the donation should contain information that the donated products will be used in charity activities. This is the only opportunity for taxpayers who have chosen a flat tax rate for the donation to be deducted from income tax.

Documenting the donation

According to the regulations, the transfer of the donation, which reduces the tax base, must be properly documented. The annual tax return should include the data identifying the gifted entity and attach:

• a document containing the identification data of the recipient, the value of the donation, and in the event that the donation is of a material nature - the recipient's declaration of acceptance of the donation,
• in the case of transferred funds - confirmation of the transfer of funds to the recipient's bank account.
• certificate from the blood donation unit about the amount of donated blood.

Donations are booked in the revenue and expense ledger when they constitute tax costs. An important element here is a document confirming the donation, e.g. a proof of purchase. It should be attached to the company's documents or, in the case of using accounting services, forwarded to the accounting office. The donation, which is not a cost, but reduces the tax base, is presented only in the annual tax return. Therefore, you should remember to attach documentation confirming the donation when submitting the annual tax return. On the other hand, confirmations of donation should be kept in the company records, regardless of the type of donation.