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It’s one of those grocery formalities that many shoppers ignore: when you check out, you are sometimes asked if you would like to donate to a charity before swiping your card.
It’s not a mysterious issue at all, but it seems that a lot of people don’t understand how the donation system works at the grocery checkout counter. Case in point: a tweet with inaccurate information went viral last week claiming that participating grocery stores have already made donations to nonprofits for a tax write-off and are only collecting customer money as a refund. The donation, according to the tweet, is just a ploy to make profit under the guise of charity.
While allegations of corporate misconduct and general greed will always spark outrage, this tweet shot through the social media stratosphere despite a lack of context or evidence. It’s just totally wrong, too. Let’s demystify how these donations really work from a tax standpoint.
No, the grocery store will not refund your money
There are two types of grocery checkout donations that involve point-of-sale transactions. The first, which requires a co-venture between a grocery store and a nonprofit or nonprofit, occurs when the market donates a percentage of its sales. C0 ventures in general, are regulated by the state governments. As the Council of Nonprofits notes, failure to comply with government regulations on collaborations “can result in fines and, in some states, even criminal penalties.”
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These collaborations make up a percentage of a customer’s sales and can be arranged in a number of ways. Renu Zaretsky declared for the Tax Policy Center last year how her particular grocery store deals with it:
For example, my local grocery chain offers “community rewards” when I scan my buyer’s card at the checkout. A small part of the proceeds from my purchases go to a community organization of my choosing (that of my son) Middle school).
Traditionally, like any business in America, grocery stores have been able to deduct up to 10 percent of their taxable income annually for charity, and that number was increased when last year Congress passed the CARES law. The way it works in reality, grocery stores use a small portion of their own sales as a charitable donation. In contrast to last week’s viral tweet, the donation is made at the point of sale – you don’t use the system to reimburse yourself for a previous donation.
What happens when you donate?
Then there’s another type of supermarket donation where the customer rounds up their purchase by a few dollars (or more if they want) and donates the extra money to a charity chosen by the store. But here, too, there is no sneaky, unspoken trick.
The Tax Policy Center explains how this works:
The shop serves only as a collection point for your gift. Assuming the company complies with legal requirements, your donation will not be considered as part of its business receipts or earnings, nor will the donation gift be claimed as an expense.
In other words, your gift will not affect the business’s income taxes. Remember, the business will select the receiving charity. So make sure it does one that you can support. As a customer, the donation will appear on your receipt and you can claim it as a charitable deduction when you file your income tax return. But you probably won’t.
When you receive the receipt for the donation (and if the donation goes to a 501 (c) (3) registered nonprofit) you can deduct it from your personal income on your taxes. For the 2020 tax year, you can deduct up to $ 300 in charitable donations without listing.
Needless to say, there is a specific public relations tactic that markets use to encourage customers to donate to charity. But the grocery stores don’t use manipulative tactics – and you can benefit from them if you have a shrewd mind with your taxes. And as always, your personal finance advice will not be available on social media.