Can a Partnership Deduct Charitable Contributions?

Partnerships navigate a unique path when it comes to charitable contributions, differing significantly from the direct deductions available to individuals and corporations. The Internal Revenue Service (IRS) treats partnerships as “pass-through” entities, meaning the business itself does not pay income tax. Instead, profits, losses, and other tax items, including charitable contributions, are passed through to the individual partners.

How Partnerships Report Charitable Contributions

Partnerships do not claim charitable contribution deductions at the entity level. Instead, these contributions are allocated to and passed through to the individual partners. The mechanism for this allocation occurs through Schedule K-1 (Form 1065), which each partner receives annually. This schedule details each partner’s share of the partnership’s income, deductions, credits, and other items.

Charitable contributions made by the partnership are reported in Box 13 of Schedule K-1, under various codes depending on the type and nature of the contribution. For instance, cash contributions generally appear under Code A (60% limit) or Code B (30% limit), while noncash contributions are typically reported under Code C (50% limit) or Code D (30% limit). The partnership’s role is to accurately report these amounts to its partners, providing them with the necessary information to claim their proportionate share of the deduction on their personal tax returns.

Partner-Level Deduction Rules

Individual partners deduct their share of the partnership’s charitable contributions on their personal income tax returns, on Schedule A (Form 1040), if they itemize deductions. The amount a partner can deduct is subject to specific Adjusted Gross Income (AGI) limitations, which vary based on the type of contribution and the recipient organization. For cash contributions to public charities, individuals can generally deduct up to 60% of their AGI. Certain organizations, such as private non-operating foundations, may be subject to a 30% AGI limit for cash contributions.

Noncash contributions have different AGI limitations. Contributions of ordinary income property are typically limited to 50% of AGI, while appreciated capital gain property donated to public charities is generally limited to 30% of AGI. If the capital gain property is donated to certain private non-operating foundations, the limit can drop to 20% of AGI.

If a partner’s charitable contributions exceed their applicable AGI limits in a given tax year, the excess amount can be carried over and deducted in up to five subsequent tax years. This carryover provision allows partners to eventually realize the tax benefit of their full contribution, even if their current year’s income limits the immediate deduction.

Required Documentation for Charitable Contributions

Proper documentation is essential for both the partnership and its individual partners to substantiate charitable contributions. For cash contributions, the requirements vary based on the amount. Contributions under $250 can typically be substantiated with bank records, such as canceled checks or bank statements, or payroll deduction records.

For cash contributions of $250 or more, a contemporaneous written acknowledgment from the charitable organization is required. This acknowledgment must include the amount of cash contributed, a statement indicating whether the organization provided any goods or services in return for the contribution, and a good faith estimate of the value of any such goods or services. The acknowledgment is considered “contemporaneous” if received by the donor by the earlier of the date the donor files their tax return for the contribution year or the due date (including extensions) of that return.

Noncash contributions also have specific documentation requirements. For donations exceeding $500, taxpayers must complete and attach Form 8283 to their tax return. This form provides details about the donated property, including its description, fair market value, and how it was acquired. If the value of a noncash contribution exceeds $5,000, a qualified appraisal of the property is generally required, and Section B of Form 8283 must be completed, including the appraiser’s signature. For certain high-value noncash gifts, such as artwork over $20,000 or any noncash gift over $500,000, the appraisal must be attached to the tax return.

The partnership is responsible for collecting and retaining all necessary documentation from the charitable organization to accurately report contributions on Schedule K-1. Partners must also retain their own records, including the Schedule K-1 and any acknowledgment letters, to support their individual deductions. Adhering to these documentation rules helps ensure compliance with IRS regulations and supports the validity of the claimed deductions.