Claiming Charitable Contributions as a Business Expense

As a general rule, contributions to a charity from your business are not considered business expenses. Only a regular corporation makes charitable contributions on its own behalf and takes a deduction for them from its taxable income. All other businesses do not pay income tax and pass through the tax impacts of their activities to their owners. Among the pass-through acts are gifts to charities.

Unincorporated sole proprietors, partners in partnerships, and shareholders of S corporations treat charitable contributions by their businesses as if they had made the donations themselves. The same rules apply to multiple-member LLCs when they’re taxed as either partnerships or S corporations. Part owners of organizations with multiple partners or shareholders receive a pass-through of business charitable contributions in proportion to their percentages of ownership. Business owners must itemize personal income tax deductions to receive tax benefits from charitable donations.

For the business to have a qualified charitable donation, a monetary cost must be incurred. Hence, no deduction is allowed for the value of an entrepreneur’s time or the time of employees for volunteering with a charity. The amount of deduction for donating a non-cash item is limited to its book value. This is the value not yet already deducted, including deducted depreciation expense. No business charitable contribution has occurred for giving an item whose cost has been fully depreciated or was deducted as an expense when purchased.

Payments to a charity can be counted as ordinary business expenses if they are directly related to business matters. This includes, for example, purchasing advertising from sponsorship of charitable events.