If you run an LLC or limited liability company, you may be asking if an LLC can write off charitable donations? So, what’s the answer, are business charitable donations tax deductive?
If you own a small to medium size business and you’re committed to giving back to the community via charitable giving, here’s the lowdown on doing so in a way that benefits not only your charitable institution, but your company.
What are considered business donations to charity?
Charitable donations include cash donations, sponsorships of events and in-kind contributions, for example, donation of equipment or inventory. Mileage and travel expenses incurred while working for a charitable organization can also be considered business donations to charity.
You can also deduct intellectual property, including patents and trademarks at ‘fair market value’, as well as a percentage of income from certain types of business property for the life of the property or for 10 years (whichever is earlier). Food inventory for “apparently wholesome food” from your business can also be considered for deductible purposes under certain rules.
You can’t deduct the value of your/your employees’ time whilst volunteering for a charity (including time serving on a nonprofit board) as business donations to charity.
Can an LLC write off charitable donations as a partnership?
A partnership doesn’t pay income taxes. All income and expenses, including deductions for charitable giving, are passed to the partners on their individual Schedule -1 forms. When a partnership makes a charitable donation, each partner takes a percentage share of the deduction in their personal tax returns. For example, if a company with two partners donates $2000 dollars to charity in one year, the partners can each claim $1000 in charitable deductions.
Contributions by partnerships are capped unless the charitable organization provides written confirmation showing the amount of the cash contribution or an estimate of the goods or services provided.
Are business charitable contributions tax deductive for all non-profits?
Before you make any business donations to charity, you need to make sure that the charity you’re donating to has been qualified by the IRS. The IRS defines a charitable organization as an organization that has a charitable, scientific, educational, or literary function, or an organization that works to prevent cruelty to children or animals. Donations to a state or federal government also qualify, as long as the gift is designed for the good of the public.
Qualified organizations need to meet specific requirements and are often termed 501 (c) 3 organizations. When asking whether business charitable donations are tax deductive for a particular non-profit company, you can:
Use the IRS online search tool
Ask the charity to send you a copy of their IRS status letter to confirm that they’re exempt
Check that the charity is not involved in lobbying, especially if that lobbying is of direct financial interest to your company
Single member LLC charitable contributions
Sole proprietors may be able to deduct charitable contributions made by their business. For single member LLC charitable contributions, business income is passed through a personal tax return. In general the maximum deduction cannot be over 60% of your adjusted gross income (but this may differ in certain circumstances).
When an owner of a sole proprietorship files business taxes as part of their personal tax return, the deduction has to be made through the personal part of the return on Schedule A (not on the business Schedule).
Are charitable donations a business expense?
Cash payments made to an organization (whether they have charitable status or not) can be classified as business expenses. However, these payments must be neither charitable contributions or gifts – nor can they be directly related to your business. Charitable donations cannot be deducted as business expenses.
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