Recording Charity Donations in Bookkeeping for Small Businesses in Singapore

Contributing to charitable causes is a powerful way for a small business owner in Singapore to give back to the community. Beyond the social good, charitable donations can also provide significant financial benefits. Under Singapore’s tax laws, businesses can claim a tax deduction of up to 2.5 times the value of donations made to approved Institutions of a Public Character (IPCs). 

To fully benefit from these incentives and ensure your financial records remain accurate, it is crucial to record charity donations in your bookkeeping system properly. Here’s how you can ensure compliance with tax regulations and maximise your charitable giving:

1. Establish a Dedicated Account for Charity Donations

Create a specific account or category for charity donations in your accounting system, such as “Charitable Contributions” or “CSR Expenses.” This helps keep your donations separate from other business expenses, making it easier to track and report them during tax season.

2. Retain Proper Documentation

For each donation, ensure you obtain a receipt from the charity. This receipt should include the charity’s registration number, the donation amount, and the date of the contribution. Proper documentation is essential, not just for your records but also when you claim tax deductions.

Example:

If your business donates $1,000 in cash to a qualifying charity and $500 worth of goods, you should maintain receipts for both donations: one for the cash donation and another detailing the fair market value of the donated goods.

3. Record Donations in the Correct Accounting Period

It’s important to record donations in the accounting period in which the donation is made, even if payment is processed later. This ensures your bookkeeping is aligned with the financial period, and your charitable giving is accurately reflected in your financial statements.

4. Track Donations for Tax Deductions

Singapore offers a tax deduction of 2.5 times the value of donations made to approved IPCs. To maximise this benefit, it’s vital that your donations are properly documented and recorded in your bookkeeping system. The Inland Revenue Authority of Singapore (IRAS) will automatically process the tax deduction based on the information submitted by the charity.

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5. Account for Both Cash and Non-Cash Donations

Whether your donation is in cash or in-kind, it’s important to record it accurately in your books. For cash donations, simply note the donation amount. For non-cash donations, such as goods or services, record the fair market value of the donated items. Ensure you have proper documentation, such as invoices or valuation reports, to substantiate the value of non-cash donations.

6. Reflect Donations in Financial Statements

When preparing your financial statements, include charity donations under the appropriate expense category, such as “Operating Expenses.” This not only ensures compliance but also highlights your business’s commitment to corporate social responsibility (CSR). Properly reflected donations also provide a clearer picture of your business’s financial health, especially when working with investors or auditors.

7. Stay Informed About Tax Deduction Schemes

As of 2024, the Singapore government has extended the 250% tax deduction for donations until the end of 2026. This extension gives businesses continued incentives to contribute to charitable causes. Furthermore, from 2025, the Overseas Humanitarian Assistance Tax Deduction Scheme (OHAS) will offer a 100% tax deduction for qualifying overseas cash donations.

8. Compliance and Reporting: The Role of Proper Bookkeeping

When filing your annual tax returns with IRAS, it’s essential to ensure that all charity donations are properly reflected. Donations should be included under the “Other Deductions” section of your tax return. Properly categorising donations allows your business to benefit from the available tax deductions, which can significantly reduce your taxable income.

Additionally, businesses may need to submit supporting documents, including donation receipts, to substantiate their claims. Having well-maintained records ensures a smooth process during tax filing, allowing you to confidently claim deductions.

The Role of a Company Secretary in Compliance

While recording charity donations and ensuring accurate bookkeeping is important, it can also be complex, especially for businesses with multiple donations or more intricate financial structures. Having a company secretary can help ensure that your business remains compliant with Singapore’s regulations by maintaining accurate records, filing necessary documents with the authorities, and ensuring that all aspects of your financial reporting, including charitable contributions, are handled appropriately.

Summary

Accurate bookkeeping for charity donations is not just about tracking gifts to causes close to your business’s heart; it’s about ensuring compliance with tax laws and maximising financial benefits. By following these steps, small businesses in Singapore can successfully navigate the process of charitable giving while reaping tax relief.

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Here are some articles you might find helpful:

GST registration guide

Corporate tax filing 

Record keeping requirements