Can a Business Deduct Charitable Contributions: Limits by Entity Type

Yes, a business can deduct charitable contributions, but the mechanics and the limits depend entirely on how the business is organized. A C-corporation deducts gifts on its own return, subject to percentage-of-income caps. A pass-through entity (S-corporation, partnership, or sole proprietorship) passes the deduction through to its owners, who claim it on their personal returns under the individual AGI limits. Starting with tax years beginning after December 31, 2025, C-corporations also face a new 1% floor: only contributions above 1% of taxable income count toward the deduction.

How Your Business Structure Determines the Deduction

C-corporations are separate taxpayers. They report charitable contributions directly on Line 19 of Form 1120, and the deduction reduces the corporation’s own tax liability.¹ Accrual-basis C-corporations get a useful timing rule: if the board authorizes a gift before year-end, the company can still deduct it for that year as long as the payment is made by the 15th day of the fourth month after the close of the tax year (April 15 for calendar-year filers). The corporation makes the election on the return for the earlier year.²

Pass-through entities work differently. The business itself pays no federal income tax on its earnings, so it doesn’t deduct the contribution directly. Instead, it reports each owner’s share of the donation on Schedule K-1.³ Partners and S-corporation shareholders then pick up that amount on their personal Form 1040, generally as an itemized deduction on Schedule A.⁴ Sole proprietors combine business-related giving with their personal charitable donations on the same personal return. In every pass-through case, the tax benefit lands on the individual, not the business.

C-Corporation Limits Starting in 2026

For tax years beginning after December 31, 2025, a C-corporation can only deduct the portion of its charitable contributions that falls between 1% and 10% of taxable income, calculated before the charitable deduction itself.²

Take a corporation with $500,000 in taxable income that donates $30,000:

1% floor: $5,000, not deductible
10% ceiling: $50,000
Allowable deduction: $30,000 minus $5,000, or $25,000

Before 2026 that same corporation would have deducted the full $30,000. A corporation that donates less than 1% of its taxable income gets no deduction at all. Amounts exceeding the 10% ceiling carry forward for up to five years on a first-in, first-out basis. The 1% floor generates no carryforward: that first slice is simply lost.

How Much Pass-Through Owners Can Deduct

When the contribution flows through to an owner’s individual return, the caps are based on the owner’s adjusted gross income and depend on both the type of property given and the type of recipient:

60% of AGI for cash gifts to public charities. The One Big Beautiful Bill Act made this limit permanent; it had been scheduled to revert to 50% after 2025.⁵
50% of AGI for most non-cash gifts to public charities and certain private operating foundations.
30% of AGI for contributions to private non-operating foundations, veterans’ organizations, and fraternal societies, and for capital gain property given to public charities.
20% of AGI for capital gain property given to private non-operating foundations.

Amounts over the applicable ceiling carry forward for up to five years. If you have carryovers from multiple prior years, you use the oldest one first, and within each category current-year giving is deducted before any carryover.⁶

Which Organizations Qualify

The recipient must be an organization described in Section 170(c) of the Internal Revenue Code. The most familiar are 501(c)(3) groups: religious institutions, schools, hospitals, and scientific research organizations.⁷ Federal, state, and local governments also qualify when the gift serves a public purpose. Before writing a check, confirm eligibility through the IRS Tax Exempt Organization Search.⁸

Several categories do not qualify:

Political organizations, PACs, campaign funds, and individual candidates.
Social welfare organizations formed under 501(c)(4), even when the mission looks charitable.
Individuals, no matter how much need is involved. The gift must go through a qualifying organization.
Foreign organizations, with narrow exceptions under tax treaties with Canada, Mexico, and Israel.²

Sponsorships Versus Charitable Contributions

Businesses often sponsor charity events, and the tax treatment turns on what the business gets in return. A qualified sponsorship payment, where the business receives nothing more than its name or logo displayed without promotional language, is generally a fully deductible business expense under Section 162 rather than a charitable contribution under Section 170.⁹ Business expenses face no percentage-of-income ceiling, so this distinction can matter.

The line is drawn at promotional content. A company name and logo at a charity 5K is acknowledgment. Add “Best prices in town!” or a discount offer and it becomes advertising, which the IRS treats as advertising income to the charity and an ordinary business expense to the sponsor. When an arrangement looks more like a donation with a promotional perk than a straight advertising buy, the IRS may reclassify part of the payment as a charitable contribution subject to the Section 170 caps.

Enhanced Deductions for Inventory and Food

Businesses that donate their own products can sometimes claim more than cost. Under Section 170(e)(3), a C-corporation that donates inventory to a qualifying organization for the care of the ill, needy, or infants can deduct cost basis plus half the appreciation, capped at twice basis. The charity must provide a written statement that it will use the property for those purposes and won’t resell it.²

Food donations reach further. Any business, not only a C-corporation, can use the enhanced deduction for donations of apparently wholesome food from a trade or business. For businesses other than C-corporations, the total food-donation deduction in a year is capped at 15% of net income from the trades that made the contribution. C-corporations face the same 15% limit measured against taxable income. Food subject to federal safety regulation must comply with the Federal Food, Drug, and Cosmetic Act on the donation date and for the preceding 180 days.

Documentation You Need

Recordkeeping is where deductions are most often lost. The requirements scale with the size and type of gift.

Cash Gifts

For any cash contribution, keep a bank record (canceled check, credit card statement, or bank statement) or a written communication from the charity showing its name, the date, and the amount.² Once a single contribution reaches $250, you also need a contemporaneous written acknowledgment from the organization stating whether it provided any goods or services in return. That acknowledgment must be in hand by the earlier of the date you file the return or its due date, including extensions.¹⁰

Non-Cash Gifts

If total non-cash contributions exceed $500, file Form 8283 describing the items donated.¹¹ Items valued at $5,000 or less go in Section A. Items worth more than $5,000 require Section B and a qualified appraisal from an independent professional; a donor or charity estimate will not do.¹² Partnerships and S-corporations must attach a copy of Form 8283 to every Schedule K-1 issued to a partner or shareholder who receives a share of the deduction.

Vehicles Over $500

For donated vehicles, boats, or airplanes worth more than $500, the charity issues Form 1098-C and the donor attaches Copy B to the return. If the charity sells the vehicle at arm’s length, the deduction is limited to the lower of the sale proceeds or fair market value.¹³

Quid Pro Quo Payments

When the business gets something back (a gala dinner, event tickets, an auction item), only the amount above the fair market value of what was received is deductible. Pay $500 for a fundraiser dinner worth $150 and the deductible portion is $350. Charities must provide a written disclosure for any quid pro quo payment over $75, estimating the value of what was provided.¹⁴ Token benefits, such as a mug or tote bag, don’t reduce the deduction if the item costs the charity no more than $13.90 and the contribution is at least $69.50 (2026 figures).

What You Cannot Deduct

Some giving never produces a deduction. The value of services or time is not deductible, so hours your employees spend volunteering have no deductible value even though unreimbursed out-of-pocket expenses tied to that volunteer work can be claimed.⁶ Contributions to lobbying organizations, political candidates, and most foreign charities produce no deduction. Payments where you receive something of equal value in return are purchases, not gifts, even when the seller is a nonprofit. A pledge alone does not create a deduction: cash-basis taxpayers must actually pay before year-end for the gift to count.¹⁵

1
Internal Revenue Service. Instructions for Form 1120 (2025)
2
Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts
3
Internal Revenue Service. Instructions for Form 1065 (2025)
4
Internal Revenue Service. Partner’s Instructions for Schedule K-1 (Form 1065) (2025)
5
Internal Revenue Service. Charitable Contribution Deductions
6
Internal Revenue Service. Publication 526, Charitable Contributions
7
Internal Revenue Service. Exempt Organization Types
8
Internal Revenue Service. Tax Exempt Organization Search
9
Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses
10
Internal Revenue Service. Charitable Organizations – Substantiation and Disclosure Requirements
11
Internal Revenue Service. About Form 8283, Noncash Charitable Contributions
12
Internal Revenue Service. Instructions for Form 8283
13
Internal Revenue Service. Form 1098-C – Contributions of Motor Vehicles, Boats, and Airplanes
14
Internal Revenue Service. Charitable Contributions – Quid Pro Quo Contributions
15
eCFR. 26 CFR 1.170A-1 – Charitable, Etc., Contributions and Gifts; Allowance of Deduction