Let’s look at how to account for charitable contributions made through your business.
Sole Proprietors
Charitable contributions are not deducted on Schedule C and thus do not reduce self-employment income. A proprietor instead reports business charitable contributions along with their other non-business contributions as an itemized deduction on their Schedule A.
Example
Joe the Window Washer makes $500 of charitable contributions through his window-washing business. He gives another $250 to his church, in his name personally. On Joe’s tax return, he’ll deduct $750 as an itemized deduction on his Schedule A. His $500 of business contributions go on Schedule A, not on his business Schedule C.
Partnerships and S-Corps
A similar concept applies to partnerships and S-corps. Charitable contributions are not taken as business deductions on the entity tax return. Instead the contributions pass through to the partners or shareholders, who report those items as itemized deductions on their personal returns.
Example
Let’s say Joe the Window Washer has a business partner named John. They are taxed as a partnership, with each owning 50% of the company. During the year, the partnership makes $1,000 of charitable contributions. The partnership does not take a deduction for these contributions. Instead, the contributions pass through to Joe and Jack ($500 each) and they will report those contributions as itemized deductions on their personal tax return.
C-Corps
C-corporations can take a business deduction for charitable donations the corporation makes. A c-corp is limited to deducting no more than 10% of its taxable income for the year, after certain adjustments are made. This is something I’ve never had to deal with in my practice, so I’m going to leave it at that. For more information, see page 12 of IRS Publication 542.