Resources
- IRS Publication 526: Charitable Contributions
- IRS Publication 561: Determining the Value of Donated Property
- How Small Business can get Tax Deductions for Charitable Giving
Why YOU Should Care
The IRS allows certain donations made to qualifying organizations to be deducted for tax purposes. Your business is also eligible to make charitable contributions, but your legal structure determines where this contribution shows up on your business or personal tax return(s).
Charitable donations made by an individual (or married couple filing jointly) are always reported on the Schedule A. This schedule is filed with the complete, timely-filed tax return. The remainder of this post will focus on charitable donations made by businesses.
What you Can Deduct
Charitable donations tend to fall into two categories:
- Money (e.g., cash and checks)
- Property
While the value of donated money is easy to determine, the value of donated property depends on the fair market value of the item. This is the amount at which you’d be able to sell the item to the general public. This value takes into account any depreciation already taken on the item. If the item you plan to donate is worth more than $5,000, you should get an appraisal by a third-party to confirm value before claiming the item on your tax return.
The donation must occur by the end of your tax year to be claimed on that year’s tax return.
What you Cannot Deduct
If you provide services, keep in mind that your time is never a charitable deduction – even if you are doing something for the charity for which you’d charge a normal client.
For example, a photographer working with a charity has agreed to shoot for 6 hours and then produce prints for the charity’s use. While the photographer would normally charge an hourly rate for a 6-hour shoot, only the costs associated with producing the prints are considered a charitable donation in this case.
The Deduction on your Tax Return
Sole Proprietorship or Single-Member LLC – Both of these structures report all business income and expense on a Schedule C which is filed with the owner’s personal tax return. This Schedule does not include a place for charitable contributions. Instead, charitable contributions must be moved to the personal portion of the return and reported on the Schedule A.
Multiple-Member LLC or other Partnership – The charitable contribution will flow through to the partners in accordance with their ownership percentage. Each partner’s share of the contribution will appear on his or her Schedule K-1 and be reported on his or her personal return on the Schedule A.
S-Corporation – The charitable contribution will flow through to the shareholders in accordance with their ownership percentage. Each shareholder’s share of the contribution will appear on his or her Schedule K-1 and be reported on his or her personal return on the Schedule A.
C-Corporation – The charitable contribution will be reported on line 19 of the Form 1120 and be deducted when calculating taxable income.
