Business Charitable Donations: C Corp and Pass-Through Rules

A business charitable donation deduction works one of two ways depending on how the business is taxed. A C corporation claims the deduction on Form 1120, but starting with tax years after 2025 only the portion of giving that exceeds 1% of taxable income counts, and total deductible contributions still can’t exceed 10% of taxable income. An S corporation, partnership, or LLC taxed as either doesn’t deduct anything at the entity level. The contribution passes through on Schedule K-1 to each owner, who can use it only if they itemize on Schedule A.

That split is the whole game. Everything else — what qualifies, how to document it, what happens to excess amounts — sits on top of that first question.

C Corporation Deduction: The 1% Floor and 10% Ceiling

Two limits frame a C corporation’s charitable deduction, and both are tied to taxable income for the year (calculated before the charitable deduction itself, the dividends-received deduction, any net operating loss carrybacks, and certain other special corporate deductions).¹

The 1% floor is new. Added by the One Big Beautiful Bill Act and effective for tax years beginning after 2025, it means a C corporation can deduct charitable contributions only to the extent they exceed 1% of taxable income.¹ The first 1% produces no tax benefit.

The 10% ceiling is the longstanding cap on the other end. Take a corporation with $5 million in taxable income and $200,000 in charitable contributions. The first $50,000 (1% of $5 million) is disallowed by the floor. The remaining $150,000 is deductible because it sits under the $500,000 ceiling.

Carryforward of Excess Contributions

Amounts disallowed by either limit can be carried forward for up to five tax years, with a catch worth reading twice: contributions blocked by the 1% floor can only be carried forward if the corporation also has contributions disallowed by the 10% ceiling in the same year.¹ A corporation whose total giving lands between 1% and 10% of taxable income loses the floor-disallowed portion outright. It doesn’t carry.

Timing for Accrual-Basis Corporations

Cash-basis corporations deduct contributions in the year they’re paid. Accrual-basis corporations get an extra option: they can elect to treat a contribution as paid in the current tax year if the board of directors authorized it during that year and the payment is actually made by the 15th day of the fourth month after the tax year ends.¹ For a calendar-year filer, that’s April 15. This lets a company finalize year-end giving after seeing actual taxable income.

Pass-Through Deduction: It Happens on the Owner’s Return

An S corporation, partnership, or LLC taxed as either doesn’t pay entity-level income tax, so the charitable deduction doesn’t appear on the business return. The entity reports each owner’s share of the contribution as a separately stated item on Schedule K-1, and the owner claims it on Form 1040 as an itemized deduction on Schedule A.²

The itemization requirement is where most pass-through owners lose the benefit. The 2026 standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly. If total itemized deductions — mortgage interest, state and local taxes (capped at $10,000), charitable contributions, and everything else — don’t clear those thresholds, the business’s charitable giving produces no federal tax benefit for the owner.

Owner-Level AGI Limits

Pass-through owners are subject to individual adjusted gross income limits rather than the 10% corporate ceiling. Cash contributions to public charities are capped at 60% of AGI.¹ Contributions of long-term capital gain property to public charities are limited to 30% of AGI. Cash contributions to most private nonoperating foundations also carry a 30% AGI limit.³ Excess above these limits carries forward for up to five years.

Basis Reduction

A charitable contribution flowing through on Schedule K-1 reduces the owner’s basis in the entity. For property donations, the reduction equals the entity’s cost basis in the property, not its fair market value. If the reduction pushes an owner’s basis to zero, no further losses or deductions from the entity can be claimed until additional basis is created through new capital contributions or allocated income. At-risk and passive activity rules can further limit what the owner uses in a given year.

Qualified Recipients

A contribution is only deductible if the recipient is a qualified organization under Section 501(c)(3) of the Internal Revenue Code.⁴ That covers churches, hospitals, schools, public charities, and similar nonprofits organized for religious, educational, scientific, or charitable purposes.

Not every 501(c)(3) offers the same deduction generosity. Public charities give donors the most favorable percentage caps; private nonoperating foundations carry lower caps.³ The distinction matters most for pass-through owners applying AGI limits on their personal returns.

What You Can and Can’t Deduct

Deductible contributions include cash, checks, electronic transfers, and property such as appreciated stock, equipment, or inventory. Out-of-pocket expenses employees incur while volunteering, like mileage driven for the charity, also count. The IRS charitable mileage rate for 2026 is 14 cents per mile.⁵

You cannot deduct the value of donated services. If an accounting firm gives a nonprofit 50 hours of free tax prep, neither the firm nor the employees deduct anything for that time.

Appreciated Stock and Other Property

Donating publicly traded stock held for more than a year to a public charity produces one of the strongest tax outcomes available. The donor generally deducts the full fair market value and recognizes none of the built-in capital gain.¹ For tangible personal property and for gifts to private foundations, the deduction is generally reduced to the donor’s cost basis rather than fair market value.

Quid Pro Quo Contributions

When a business pays a charity and receives something of value back, only the portion above the fair market value of what it received is deductible. Pay $1,000 for a gala table worth $400 and the deductible amount is $600. The charity must provide a written disclosure statement for any quid pro quo payment over $75, including a good faith estimate of what it provided.⁶

Enhanced Deduction for Inventory Donations

Businesses with inventory can qualify for an enhanced deduction when donating certain property used for the care of the ill, the needy, or infants. Qualifying items include food, books, and scientific equipment. Instead of deducting only cost basis, the business deducts basis plus half of the property’s appreciation, capped at twice the basis.¹

Food donations follow their own track. The food must be “apparently wholesome” and fit for human consumption. The deduction for food inventory is capped at 15% of taxable income for a C corporation or 15% of aggregate net income from the relevant trade or business for other taxpayers.¹ The charity must confirm in writing how the food will be used, and the donor cannot receive anything in exchange.

Documentation That Actually Holds Up

The IRS will disallow a deduction entirely for missing paperwork, whether or not the gift really happened. Requirements scale with the size and type of contribution.

Cash Contributions

For a cash gift under $250, keep a bank record (canceled check, bank statement, or credit card receipt) or a written receipt from the charity showing name, date, and amount. For a single cash contribution of $250 or more, a bank record alone isn’t enough. You need a contemporaneous written acknowledgment from the charity stating the amount and whether any goods or services were provided in return, including a good faith estimate of their value if so.¹

“Contemporaneous” means you obtain the acknowledgment by the earlier of the date you file the return or the due date (including extensions) for that return.¹ Late acknowledgment doesn’t count, and courts have upheld disallowances where that was the only defect.

Non-Cash Contributions and Form 8283

When total non-cash contributions exceed $500 in a tax year, the business files Form 8283 with its return. Contributions over $500 up to $5,000 go in Section A with a description of the property, how and when it was acquired, cost basis, and fair market value with the valuation method. Contributions over $5,000 go in Section B, which adds a qualified written appraisal and the donee organization’s signature acknowledging receipt.⁷ Publicly traded securities and certain inventory are exempt from the appraisal requirement even above $5,000.

The appraisal itself must be signed and dated by a qualified appraiser no earlier than 60 days before the contribution and no later than the due date (including extensions) of the return on which the deduction is claimed.⁸ The appraiser cannot be the donor, the recipient, or a party related to either. An appraisal outside that window or from a disqualified person can invalidate the entire deduction.

Penalties for Overstating a Deduction

Disallowance isn’t the end of the exposure. The IRS imposes a 20% accuracy-related penalty on the portion of a tax underpayment attributable to negligence or a substantial understatement.⁹ A $50,000 deduction thrown out that produces a $10,500 underpayment adds another $2,100 on top of the tax and interest.

Overvalued property is worse. When the claimed value of donated property exceeds 150% of its correct value and the resulting underpayment exceeds $5,000, the 20% penalty applies automatically. At 200% or more of the correct value, the penalty doubles to 40%. Inflated appraisals on non-cash gifts have historically been one of the most audited areas of charitable giving, and the penalty structure reflects it.

1
Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts
2
Internal Revenue Service. Charitable Contribution Deductions
3
Internal Revenue Service. Publication 526 – Charitable Contributions
4
Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc.
5
Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate
6
Internal Revenue Service. Charitable Contributions: Quid Pro Quo Contributions
7
Internal Revenue Service. Instructions for Form 8283 – Noncash Charitable Contributions
8
Internal Revenue Service. Instructions for Form 8283
9
Internal Revenue Service. Accuracy-Related Penalty