The rules for making charitable donations from your business are similar to those governing personal donations. For example, you can donate cash or property, your total deduction may be limited, you may need to get an appraisal to establish value, and you have to keep good records.
How you report the deduction depends on how your business is structured.
- Sole proprietorship. If you’re a sole proprietor, charitable contributions are not reported on your “Schedule C, Profit or Loss from Business.” Instead, you’ll report the contribution on “Schedule A, Itemized Deductions.”
Tip: Be sure to classify expenses properly to get the maximum deduction. As an illustration, say you take out an ad for your business product in a church bulletin. The cost is an advertising expense, not a charitable donation and you can deduct it directly from your business income.
- Pass-through entity. Charitable contributions you make from your partnership or S corporation flow to you as the partner or shareholder in the same way as other income and expense items. Your deduction, which you claim on your personal return, may be limited by your basis in the business. In addition, since you have to itemize to benefit, other limitations may reduce the total amount you can deduct.
- Corporation. C corporations can deduct charitable contributions on the corporate federal income tax return. Generally, the deduction is limited to 10% of taxable income. Special rules apply to donations of certain inventory, such as food.
Please give us a call if you’re considering making a charitable donation from your business. We can help you run the numbers to determine the tax benefit.
© MC 2015