3 Tax Deductions For Charitable Donations You May Not Know About

tax breaks for businesses through donations

Donating to charity is more than good business citizenship; it can also save tax. Here are three not so well known federal income tax deductions for charitable donations by businesses.

1. Food Donations

There are normally limitations to charitable write-offs for food donation (such as by restaurants and grocery stores) to the lower of the taxpayer’s basis in the food (generally cost) or fair market value (FMV). However, an enhancement to the deduction equals the lesser of:

    • The food’s basis plus half the FMV in excess of basis.
    • Two times the basis.

To qualify, the food must be apparently wholesome at the time of donation. Your total charitable write-off for food donations under the enhanced deduction provision can’t exceed:

  • You should calculate 15% of your net income for the year, excluding the enhanced deduction. This income derives from various business types, including:
    • Sole proprietorships.
    • S corporations.
    • Partnership businesses. This includes limited liability companies treated as partnerships for tax purposes.

Focus on businesses that made food donations.

  • For a C corporation taxpayer, 15% of taxable income for the year (before considering the enhanced deduction).

2. Qualified Conservation Contributions

Qualified conservation contributions are charitable donations of real property interests, including remainder interests and easements that restrict the use of real property. To qualify for the C corporation farming and ranching operations, there has been an increase in the maximum write-off for qualifying conservation contributions. This amount has gone from the normal 10% of adjusted taxable income to 100% of adjusted taxable income.

Qualified conservation contributions in excess of what can be written off in the year of the donation can be carried forward for 15 years.

3. S-Corporation Stock Donations

A favorable tax basis rule is available to shareholders of S corporations that make business charity donations of appreciated property. For such donations, each shareholder’s basis in the S corporation stock is reduced by only the shareholder’s pro-rata percentage of the company’s tax basis in the donated asset.

Without this provision, a shareholder’s basis reduction would equal the passed-through write-off for the donation. This means a larger amount than the shareholder’s pro-rata percentage of the company’s basis in the donated asset. This provision is generally beneficial to shareholders, because it leaves them with higher tax basis in their S corporation shares.

Learn More About Tax Deductions for Charitable Donations

If you believe you may be eligible to claim one or more of these tax deductions for charitable donations, contact us. We can help you determine eligibility, prepare the required documents and plan for charitable donations in future years.