Does Reddit Have a New Model for Charitable Contributions?

March 12, 2015

Business and charitable giving have had a symbiotic relationship ever since Andrew Carnegie tried to clean up a sooty reputation with public libraries. It’s not all necessarily about shame cure, though. Connected businesses have an interest in working with the communities, actual and virtual, where they really live.

Reddit’s recent variation on this theme takes an experiential marketing approach, inviting community members to choose ten organizations to receive contributions. Could this work for your business, and if so, how? The bigger question is why.

Any campaign that combines marketing and charitable giving needs four things to succeed: a strategy, charitable causes that speak to the market, tax planning and some clarity about what your business actually wants to achieve at the end of the day, which is to say, a strategy.

Charitable Marketing Strategy

Linking charitable giving to marketing is something of a natural. Seventy-five percent of small businesses donate some percentage of profits to nonprofit organizations. The average is around six percent. Eighty-five percent of consumers reportedly have a more positive view of companies that make charitable gifts.

For SMEs, giving can take a variety of forms, including cash contributions, something as simple as shared signage, sponsorship of local charitable events, donations of excess inventory or sustained support through a formal foundation or council.

Early in 2014, the news sharing community, Reddit, declared that it would donate 10 percent of its annual advertising revenues to charity.  On February 18, 2015, it announced that the total to be divided among 10 charities would be $827,659.29, and account holders were invited to vote for recipients, using Charity Navigator’s very large, vetted database of organizations. Voting took place for a week, between February 18 and 25, 2015.

As another example, Subaru has hosted an annual “Share the Love” event for the last seven years. From November 20, 2014 to January 2, 2015, Subaru donated $250 for every new Subaru vehicle sold or leased to the customer’s choice of four or possibly five charities. Total donations were expected to exceed $15 million.

Three models emerge: one in which the corporate mogul, (Andrew Carnegie or, more recently, the charitable contributions committee) makes a decision about where to direct philanthropic efforts, and two in which consumers, themselves, direct giving.  The obvious difference between the latter two, the Subaru and Reddit campaigns, lies in the range of consumer choice.  In all three, the giver may get something different from the deal.

The business donor usually gets to bask in the glow of good works. Reddit and Subaru are also engaged in a form of marketing  in which the consumer is encouraged to build a stronger connection with the brand because of a shared experience or goal. In the Reddit model, limited-time voting created some of the buzz of a contest, and the business also gets some very interesting feedback about the preferences of their market.

Choosing Charities

As a cautionary note, any business contemplating making charitable contributions, whether those contributions are linked to marketing efforts or not, should research the intended donee thoroughly, especially with respect to its status as an IRC 501(c)(3) organization. Your business can use the IRS’s online tool, EO Select Check, to check information about an organization’s tax exempt status. Charity Navigator also provides its own ratings and other information.

The options offered in Subaru’s “Share the Love Campaign” were:

Puppies, sick children, the elderly, trees and something local – these are safe choices. Only a Grinch could complain. Subaru walked away with good vibes, but probably very little new useful information about who buys Subarus.

In the Reddit contest, account holders could vote an unlimited number of times, but only once for any of the 5,000+ charitable organizations listed by Charity Navigator and only during the designated week. The winners in the Reddit vote were:

Not all Reddit contributors participated, certainly, but the takeaway is interesting. The list suggests that redditors favor net neutrality, free speech online, open networks, free software, privacy protection, women’s reproductive rights, cannabis medical research, nontheism and public radio. No one raised the Subaru issue.

Just like Subaru, though, Reddit looks like a good corporate citizen for supporting nonprofits, but it avoided controversy by delegating the choice jointly to account holders and Charity Navigator. It avoided dullness because of what those account holders picked.

It may have built brand loyalty through the mechanism of the vote, especially given the apparently prickly nature of its community. Reddit may have even acquired some information, even if only confirmatory, about who makes up its community. This might be useful in future marketing efforts.

The net marketing return on Reddit’s charitable efforts may be higher than Subaru’s because, beyond the issue of tax-exemption, Reddit let go of the choice. Both Subaru and Reddit make the centralized/Carnegie approach to philanthropy look very stale. Very stale.

Tax Deductions

The third piece of the puzzle is a tax deduction.  Assuming that the recipient is a 501(c)(3)organization, how the contribution is deducted and how much is deductible will depend on what kind of contribution it was and how your business is structured. Your business should seek particularized tax advice, but in general, the following things are true.

If your business is a sole proprietorship or a single member LLC, cash contributions for which you receive no goods or services in return will ultimately end up on Schedule A of your individual tax return, but only if you itemize deductions.

The reporting for an S corporation works as it does for general partnerships in the case of cash contributions. Individual shareholders, like partners, will receive a Schedule K-1, showing their share of charitable contributions made by the business. Those would then be reported on an individual tax return,

If your business does get something in return, like signage, the contribution may be deductible as a business expense for advertising on your Schedule C.  In-kind contributions are subject to special limits. If you donate services or expertise, the gift is not deductible.

Only a C corporation is able to make charitable contributions on its own behalf and to take corporate tax deductions for those contributions.

With small or middle-sized businesses that are not organized as C corporations, the issue of marketing benefit may play a larger role than the benefit of the deduction. The monetary value of the tax deduction itself may be a pot sweetener, though.

Scaled Down Application

Let’s suppose that your relatively new business has not yet reached the proportions of Reddit or Subaru. Fifteen million dollars is a big contribution budget. Why donate to charity, anyway?

Here are a couple of options. Try ranking them in terms of importance. This may clarify your approach:

  • an altruistic expression of business values,
  • the desire to deal with some awkward or embarrassing business history,
  • an interest in tax deductions,
  • a desire to engage customers or clients with the brand in a way that not specifically linked to one product,
  • a desire to explore who your market is or might be, or
  • an interest in distinguishing your business from competitors.

This hardly exhausts the possibilities, but as a small to mid-sized businessperson, you have certainly embraced the discipline of not embarking on adventures without a goal in sight.

Do charitable endeavors play a role in your marketing? Are they central to the reason that you are in business? Do you distrust the world of nonprofit fundraising? These are all reasonable answers.

However, if you choose to guide your business along the path of charitable marketing it may be smart to consider the benefits of openness to consumer direction.

Once your business has defined the size of the contribution and determined that all possible recipients are tax qualified, charitable giving may present an opportunity for valuable feedback from the consumer community.

Your business’s relationship with your market may benefit from a shared vision about larger issues as much as it does from from a good product and good service. What’s new and different in modern commerce is the potential for multidimensional feedback.

Anne Wallace, Esq.

By

Anne Wallace is a New York lawyer who writes extensively on legal and business issues. She also teaches law and business writing at the college and professional level. Anne graduated from Fordham Law School and Wellesley College.

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