donation

3 breaks for business charitable donations you may not know about

Donating to charity is more than good business citizenship; it can also save tax. Here are three lesser-known federal income tax breaks for charitable donations by businesses.

  1. Food donations

Charitable write-offs for donated food (such as by restaurants and grocery stores) are normally limited to the lower of the taxpayer’s basis in the food (generally cost) or fair market value (FMV), but an enhanced deduction equals the lesser of:

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

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

  • 15% of your net income for the year (before considering the enhanced deduction) from all sole proprietorships, S corporations and partnership businesses (including limited liability companies treated as partnerships for tax purposes) from which food donations were made, or
  • For a C corporation taxpayer, 15% of taxable income for the year (before considering the enhanced deduction).
  1. 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. For qualified C corporation farming and ranching operations, the maximum write-off for qualified conservation contributions is increased 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.

  1. S corporation appreciated property donations

A favorable tax basis rule is available to shareholders of S corporations that make charitable 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 (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.

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

© 2017

Charitable Contributions

Whether you make your gifts during this season of giving, or spread your charitable giving throughout the year, good record keeping is essential to making sure that you can qualify for the full charitable contribution deduction allowed by IRS.

First, you must be sure that the organization is eligible for a tax-deductible donation. The IRS offers Select Check an online search tool that you can use to verify that you are giving to a qualified organization. Places of worship are also eligible, but not included in this database. Gifts to individuals, political organizations or candidates are not eligible.

You must have documentation for all charitable gifts. See the table below for guidelines according to what type of donation you make.

Charitablecontributions

Vehicle donations require special reporting requirements. Contact your tax professional for details before make your donation.

You need to have all of your acknowledgements in hand before you file your tax return. So now is the time to check your records and contact the recipients if you need statements. Atchley & Associates is happy to answer any questions you have regarding charitable donations deductions and your specific tax situation.