Can an LLC Deduct Charitable Contributions on Taxes?

Many business owners want to support charitable causes while also benefiting from tax deductions. How an LLC deducts donations depends on its tax classification. Unlike corporations, LLCs usually cannot claim charitable contributions at the entity level.

Understanding these rules is essential for compliance and maximizing tax benefits.

LLC Tax Treatment

Since LLCs are not recognized as separate tax entities by the IRS, they follow the tax treatment of sole proprietorships, partnerships, or corporations. This determines whether deductions are taken at the business level or passed through to individual owners.

Single-Member

A single-member LLC (SMLLC) is considered a disregarded entity unless it elects corporate taxation. The IRS treats the business’s income and expenses as part of the owner’s personal tax return. Contributions are not deducted on a business tax form but reported as an itemized deduction on Schedule A of Form 1040.

Charitable deductions are only available to taxpayers who itemize. The owner must ensure total deductions exceed the standard amount, which in 2024 is $14,600 for single filers and $29,200 for married couples filing jointly. If donating non-cash assets, additional IRS forms, such as Form 8283 for property donations over $500, may be required.

Multi-Member

A multi-member LLC (MMLLC) is treated as a partnership unless it elects corporate taxation. As a partnership, the LLC does not claim charitable deductions; instead, donations are allocated to each member based on ownership percentage and reported on Schedule K-1. Each partner then claims their share on their personal tax return.

For example, if an LLC with two equal partners donates $10,000, each reports $5,000. However, the deduction is only useful if the partner itemizes. Partnerships must maintain detailed records, including receipts and appraisals for non-cash gifts over $5,000.

Corporate

If an LLC elects to be taxed as a C corporation, it can deduct charitable contributions on its business tax return (Form 1120), limited to 10% of taxable income before certain adjustments. Excess contributions can be carried forward for five years.

For an LLC taxed as an S corporation, contributions are passed through to shareholders and reported on Schedule K-1. Shareholders then claim the deduction on their individual returns, subject to itemization rules. Unlike C corporations, S corporations do not deduct donations at the entity level, making personal tax planning essential.

Donation Types

LLCs can donate cash, property, and inventory, each with different valuation and deduction rules.

Cash

Monetary donations include payments by check, credit card, electronic transfer, or payroll deductions. The IRS allows cash contributions to be deducted at full value, up to applicable limits.

For individuals, including LLC owners who report donations on personal returns, deductions are limited to 60% of adjusted gross income (AGI) for qualifying public charities. Contributions exceeding this limit can be carried forward for five years.

C corporations face a 10% taxable income cap before considering the contribution. To substantiate cash donations, a bank record or written acknowledgment from the charity is required for contributions of $250 or more.

Property

Non-cash donations, such as real estate, vehicles, or equipment, follow different valuation rules. The deduction depends on whether the asset has appreciated or depreciated.

If the donated property has increased in value, the deduction is generally based on fair market value (FMV), provided the charity uses it for its mission. If unrelated to the charity’s purpose, the deduction is limited to the asset’s cost basis.

For donations over $5,000, an independent appraisal is required. Form 8283 must be filed for non-cash contributions over $500, with Section B completed for donations exceeding $5,000.

Inventory

Businesses donating inventory, such as food or medical supplies, must follow specific IRS valuation rules. The deduction is typically limited to the lower of the inventory’s cost basis or FMV.

Under IRC Section 170(e)(3), C corporations donating inventory for the care of the ill, needy, or infants may claim an enhanced deduction—cost plus half of the unrealized gain, up to twice the cost basis.

For example, if an LLC taxed as a C corporation donates inventory with a cost of $5,000 and an FMV of $8,000, the enhanced deduction is $6,500 ($5,000 + 50% of the $3,000 gain). Partnerships and S corporations must pass inventory donations through to owners, who then claim the deduction on personal returns. Proper documentation, including a written statement from the charity, is required.

Documentation for Donations

Proper records are necessary to ensure deductions. Contributions must be made to a qualified 501(c)(3) organization or other IRS-recognized entity. Donations to individuals or non-qualified groups do not qualify. The IRS provides an online tool, the Tax Exempt Organization Search (TEOS), to verify an organization’s eligibility.

For donations over $250, a written acknowledgment from the charity is required. This letter must include the donor’s name, donation amount or description, and a statement confirming whether goods or services were received in return. If the donor received something in exchange, only the portion exceeding the market value of the benefit is deductible.

Volunteer time is not deductible, but related out-of-pocket expenses, such as supplies or mileage, may be. The IRS allows a standard mileage rate of 14 cents per mile in 2024 for charitable driving. Receipts for purchases and a mileage log should be retained.

Lodging or meal expenses incurred while performing volunteer work away from home may also qualify if directly related to the charitable purpose.

Reporting on Tax Returns

Charitable contributions must be reported correctly to ensure compliance and maximize deductions.

For LLCs electing corporate taxation, deductions are reported on Form 1120 under “Deductions” in the charitable contributions section. Carryover amounts from prior years must be tracked separately and applied within the five-year carryforward period.

If an LLC donates appreciated securities, tax treatment varies based on whether the entity is taxed as a corporation or passes deductions to individual owners. Owners must ensure their returns reflect correct basis and FMV calculations, particularly for securities with unrealized gains. Misreporting can trigger IRS audits, especially if contributions appear disproportionate to reported income.