How to calculate charitable contribution deduction for corporation

Disclosure

1.Your deduction for charitable contributions generally can't be more than 60% of your adjusted gross income (AGI), but in some cases 20%, 30%, or 50% limits may apply. In some cases, bunching donations may result in a charitable deduction that exceeds the IRS adjusted gross income limitations. A portion of your donation may have to be carried forward for up to 5 years and used on a later tax return. In other situations, your charitable donation, whether or not you engage in a bunching strategy, may exceed IRS adjusted gross income limitations. For more information, read IRS Publication 526 Charitable Contributions.

2.These itemized deductions are subject to limitations.

Schwab Charitable™ does not provide specific individualized legal or tax advice. Please consult a qualified legal or tax advisor where such advice is necessary or appropriate.

Schwab Charitable is the name used for the combined programs and services of Schwab Charitable Fund™, an independent nonprofit organization. Schwab Charitable Fund has entered into service agreements with certain affiliates of The Charles Schwab Corporation.

You or your business may be able to take deductions for charitable giving, either cash or noncash items, depending on your business type. The rules are complex and they have changed in the past few years. 

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. 

Key Takeaways

• Corporations may deduct charitable donations on their business tax returns.
• Owners of other types of businesses may be able to take deductions for charitable donations on their personal tax returns if they can itemize on Schedule A.  
• Charitable contributions generally can’t be more than 60% of your adjusted gross income (AGI), and in some cases, lower limits apply.

How Businesses Can Claim Charitable Deductions

You or your business can deduct charitable deductions, but how these deductions are claimed depends on your business type. 

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.

The standard deduction has been increased since 2018, with the 2022 deduction at: 

• $12,950 for single or married filing separately
• $25,900 for married filing jointly or qualifying widow(er)
• $19.400 for head of household 

 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. 

For small business owners including charitable donations on their individual tax returns there’s a limit on your cash deductions. 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.

Note

The CARES Act provisions for the $300 or $600 deduction charitable donations for those who don’t itemize and the increase to 100% of adjusted gross income, along with other items, were only available through 2021.

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 at-the-time written acknowledgment, along with Form 8283.

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, for "apparently wholesome food from your trade or business," under special rules for its use

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. 

Frequently Asked Questions (FAQs)

How do charitable tax deductions work?

Tax deductions can act as an incentive for charitable giving. You must include your deduction on the appropriate form, depending on your business type. Deductions for most small businesses are included on Schedule A of your tax return. To get credit for charitable deductions, you must be able to itemize deductions, and you can only do that if your itemized deductions greater than the standard deduction for the year. 

What charitable deductions are allowed?

There are tax deductions available for both cash and non-cash charitable donations available to individuals and businesses. Individuals and businesses that report income on their personal income tax return may itemize their charitable deduction on Schedule A. For small business owners including charitable donations on their individual tax returns there’s a limit on your cash deductions. 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. Rules for non-cash donations differ.