This Daily Tax Tip Spotify Podcast and/or WordPress Blog Post is in response to questions on the Deductibility of Charitable Contributions by a C Corporation.
A C corporation cannot treat a contribution or gift made to a charitable organization as a fully Deductible Section 162 Trade or Business Expense.
However, a C corporation can, within limits, deduct contributions or gifts made to Charitable Organizations as Section 170 Charitable Contributions. Most of the rules that apply to the charitable contributions deduction are the same for both individuals and C corporations. However, there are some special rules that apply only to charitable contributions made by C corporations.
Generally, charitable contributions are deductible in the year paid. However, for tax returns filed for tax years beginning before 2016, or 1120 Income Tax Returns filed for tax years beginning before 2026 for C corporations with a June 30 fiscal year, an accrual-basis C corporation can elect to treat a charitable contribution as paid during the tax year the contribution is authorized by the board of directors if the contribution is actually paid by the 15th day of the third month after the end of that tax year.
For 1120 Income Tax Returns filed for tax years beginning after 2015, or tax returns filed for tax years beginning after 2025 for C corporations with a June 30 fiscal year, an accrual-basis C corporation can elect to treat a charitable contribution as paid during the tax year the contribution is authorized by the board of directors if the contribution is actually paid by the 15th day of the fourth month after the end of that tax year.
Also, a C Corporation’s Charitable Contribution Deduction is limited to 10 Percent of its Taxable Income for the year. For this purpose, a corporation’s taxable income is computed without regard to the:
- Charitable Contribution Deduction itself,
- the Dividends Received Deduction,
- the Deduction for Dividends Paid on certain preferred stock of public utilities,
- the Domestic Production Activities Deduction,
- any Capital Loss Carryback to the tax year.
The amount of any charitable contributions paid by a C corporation in excess of the 10 percent limit can be Carried Over to the Five Succeeding Tax Years. The amount of the excess contributions for a year that can be carried over to succeeding years must be reduced to the extent that such amount is used to reduce taxable income for purposes of computing any NOL carryover.
Generally, the amount of a charitable contribution of Ordinary Income Property is the fair market value of the property at the time of the contribution, reduced by the amount of any gain that would not have been long-term capital gain (i.e., reduced by the amount of any short-term capital gain and ordinary income) and that would have been recognized if the property had been sold at its fair market value at the time of the contribution.
However, when a C corporation makes Charitable Contributions of certain types of ordinary income property, it gets an increased deduction. This increased deduction applies to corporate contributions of:
(1) Inventory Type Property, including food inventory and book inventory,
(2) Scientific Research Property, and
(3) Computer Equipment and technology for educational purposes.
In these cases, the amount of the C corporation’s charitable contribution is the fair market value of the property at the time of the contribution, reduced by only one-half the amount of ordinary income and Short Term Capital Gain that it would have recognized if the property had been sold at its fair market value at the time of the contribution.
Please call me at your convenience so that we can discuss in greater detail the deduction rules that apply to Charitable Contributions of a C Corporation.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.
(Updated 07032021-01 320-607)