Deducting Your Business’s Charitable Donations
Donating to charity is part of being a socially conscious business. Both customers and employees appreciate when you give back to the community. And if you do, you can get benefits on your taxes!
However, the IRS isn’t keeping track what you donate and whether it’s deductible. It’s up to you to find out if your donations are deductible, keep records of everything you donate, and include them on your tax forms. Don’t think of it as an added bonus that happens at the end of the year—keep track throughout the year as you make the donations to be sure that you’ll be able to write them off.
Your Type of Business
Different types of businesses deduct charitable donations differently. Corporations and S corporations can deduct donations on their business tax returns. Sole proprietorships, partnerships, and LLCs can’t. Instead, you can itemize them on your personal tax return.
Sole proprietors and single-member LLCs will write off their donations on Schedule A of their personal tax return. This is only available if the individual is taking itemized deductions. There is a limit to how much each individual may deduct–usually 60% of adjusted gross income, but sometimes it may be a smaller percentage.
In a partnership, the amount of donations should be divided based on your share in the partnership. So if the partnership donates $1000, two 50% partners can write off $500 each. This deduction is recorded on each partner’s Schedule K-1 form.
Keep Good Records!
When you make a donation, the nonprofit should give you an acknowledgement letter as evidence for your taxes. If they don’t, reach out and ask for one! You need that letter before you file. Keep it with your important documents.
If you are part of a partnership or the owner of an S corporation, your donations are limited to $250 for each separate donation unless you have appropriate documentation. This will usually be that acknowledgement letter from the charity, listing the value of your donation and the date it was given. However, if the letter doesn’t state the date, you can use other evidence, like a bank record or receipt, showing the date.
Only donations to churches and registered 501(c)(3) organizations can be deducted. Not sure if the charity you donated to is a 501(c)(3)? This search tool can tell you.
You can deduct donations of cash, but you can’t deduct gifts of your time. However, you can deduct mileage or other travel expenses you use to get to the volunteer opportunity. You can also donate your products, including intellectual property and food that’s still good to eat.
Sometimes what looks like a donation is really a purchase–for instance, donating to a high school’s yearbook in return for advertising on the back pages. You received something for your donation, advertising, and therefore it’s deductible as a business expense, not as a donation. A donation that is above the value of the goods or services received, however, can still be partially deductible.
More details about what kinds of donations are and aren’t deductible are available at the IRS website.
Help With Your Charitable Deductions
Taxes can get complicated, even when you’re trying to do good for the community with a charitable donation. But that doesn’t mean you should give up and not get the tax benefit for the good you’re doing. Instead, talk to a financial advisor about your options for managing these deductions. We’re ready to help!