Learn about what your business can and can’t deduct, the limits on those deductions, and how to take those deductions on your business or personal tax return.
Charitable Deductions for Small Businesses
If you report your business taxes as part of your personal tax return, you are considered a pass-through business. This includes sole proprietors, limited liability members, partners in partnerships, and S corporation shareholders. In this case, you can take charitable deductions on your Form 1040, Schedule A. This increased deduction means that many people don’t have enough deductions for charitable giving and other items to itemize on Schedule A to be able to take these deductions. There’s a limit on how much you can deduct for cash charitable contributions on an individual tax return. The total can’t be more than 60% of your adjusted gross income (AGI) (including your business income). In some cases, 20%, 30%, or 50% limits may apply. The 60% limit doesn’t apply to non-cash charitable contributions.
Standard Deduction
The standard deduction for tax year 2022 is relatively high, which may make it difficult for small business owners and individuals to deduct charitable contributions, even if they were significant. The standard deduction for tax year 2022 is:
$12,950 for single filers or those who are married filing separately$25,900 for married people filing jointly or qualifying widow(er)s$19.400 for head of household
Charitable Deductions for Corporations
Corporations can deduct charitable contributions on their corporate income tax returns, subject to limitations. Generally, a corporation can’t deduct more than 10% of taxable income, excluding certain items, but deductions over the limit may be carried over to the next five tax years.
What You Can Deduct
You or your business can deduct cash or non-cash gifts of property or equipment (called “in-kind” contributions. If you personally have made non-cash contributions over $500 in any year, you must file Form 8283 with your tax return, providing information on the donated property. If your non-cash contribution is greater than $5,000 you must have an at-the-time written acknowledgment along with Form 8283. Depending on the item in question, you may also need a qualified appraisal. You can also deduct mileage and other travel expenses incurred in working for a charitable organization, at the IRS-designated standard mileage rate for charitable work or actual expenses.
What You Can’t Deduct
You cannot deduct the value of your time or the time of your employees working as a volunteer for a charitable organization, such as time spent serving on a nonprofit board or for a local United Way organization. You can’t deduct contributions for which you receive a benefit. If your contribution includes a benefit to you (like a gift, a meal, or a ticket to a sports event), you can only deduct the part of the cost that is more than the value of the benefit.
Charities Must Be Qualified
You can only claim deductions to qualified charities as deductions on your personal or business tax return. The organization must be qualified by the IRS. The most common types of qualified organizations are:
Organizations set up for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals Churches, synagogues, or other religious organizations
Deducting Business Property Donations
You can deduct several types of business property, including
Capital assets that have a useful life of more than a year can be depreciated. You can use fair market value to value these assets for donations. Business inventory donated at the fair market value the day you donated it or its basis at the beginning of the year, whichever is smaller. Intellectual property, including patents and trademarks, at the fair market value or the basis, whichever is smaller. Food inventory from your restaurant or store, which must be “apparently wholesome food from your trade or business. The donation must qualify under IRS rules.
Getting Help With Deducting Charitable Donations
There are many hurdles to jump in taking charitable donations for your business, including limits and qualifications. Get help from a licensed tax professional to make sure you can take that deduction.
