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What About Charitable Business Contributions?



Deductr Tax Tip

What About Charitable Business Contributions?

If, like many other self-employed individuals, you are a sole proprietor, partner in a partnership, LLC member, or an S corporation shareholder, the IRS will treat charitable contributions your business makes as a personal contribution by you.

As such, the contributions are not expenses from your business--you can deduct them only as a personal (Schedule A) charitable contribution. You may deduct these contributions only if you itemize deductions on your personal tax return. These will be subject to certain income limitations.

If you were to donate products from your business rather than cash, the deduction would be limited to the market value of the inventory on the date it is donated and reduced by any gain had you sold the property at its fair market value instead of donating it.

Example: Michelle who runs a quilting business out of her house donates unsold quilts to a homeless shelter. The fair market value of the quilts donated is $400. Michelle spent $200 to produce the quilts, so she would have had a $200 gain had she sold them at market value. Her charitable deduction must be reduced by the amount of the gain, so she receives only a $200 deduction.

Charitable contributions are NOT business expenses and are NOT itemized on the Schedule C.

 

Consult your tax professional to see if this information fits your circumstances. This is not to be taken as tax advice.



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