Where Do Charitable Contributions Go on 1065?

Form 1065, the U.S. Return of Partnership Income, is a tax document used by the Internal Revenue Service (IRS) to report the financial activities of a partnership. This form details the profits, losses, deductions, and credits generated by the business. Unlike corporations, partnerships do not pay income taxes directly; instead, they function as “pass-through” entities. Any income or loss is passed through to the individual partners, who then report these amounts on their personal tax returns. This structure means that charitable contributions made by a partnership are handled differently than those made by other business structures or individuals.

Reporting Contributions on Form 1065 Schedule K

Partnerships do not deduct charitable contributions at the entity level. Instead, these contributions are reported on Schedule K, “Partners’ Distributive Share Items,” which is part of Form 1065. Schedule K summarizes the partnership’s financial activity and allocates various income, deduction, and credit items among the partners. This reporting mechanism ensures that while the partnership facilitates the donation, the tax implications are ultimately borne by the individual partners.

Specific lines on Schedule K are designated for reporting charitable contributions. Cash contributions are typically reported on Line 13a of Schedule K. Noncash contributions, such as donated property, are reported on Line 13b. For specialized donations like qualified conservation contributions, Line 13c is used. These specific line items allow the IRS to track the nature and amount of contributions flowing through the partnership.

Partner Reporting from Schedule K-1

Partners utilize the information provided on Schedule K-1, “Partner’s Share of Income, Deductions, Credits, etc.,” to report their portion of the partnership’s charitable contributions on their individual tax returns. Schedule K-1 provides a detailed breakdown of each partner’s share of the partnership’s overall financial performance. The charitable contributions reported on Schedule K are allocated to each partner and appear on their respective Schedule K-1s.

The amounts from Schedule K-1 related to charitable contributions flow to the partner’s individual tax return, specifically to Schedule A (Form 1040), “Itemized Deductions.” On Schedule A, these contributions are combined with any other personal charitable donations made by the individual. It is at this stage that individual deduction limitations are applied.

Charitable contribution deduction limitations apply at the partner level, not at the partnership level. For cash contributions, individuals can generally deduct up to 60% of their adjusted gross income (AGI), though in some cases, a 50% or 30% limit may apply depending on the type of organization. Noncash contributions typically have lower AGI limitations, often capped at 50% or 30% of AGI, depending on the property type and the donee organization. Any contributions exceeding these AGI limits in a given year may be carried forward and deducted in future years, subject to the same limitations, for up to five years.

Substantiation for Charitable Contributions

Maintaining accurate records is essential for substantiating charitable contributions made by a partnership and subsequently claimed by its partners. The IRS requires specific documentation to support these deductions. For cash contributions, regardless of the amount, taxpayers must keep records such as a canceled check, bank statement, or a receipt from the donee organization.

For cash contributions of $250 or more, a written acknowledgment from the charitable organization is required. This acknowledgment must state the amount of cash contributed, whether the organization provided any goods or services in return for the contribution, and a description and good faith estimate of the value of any such goods or services. If no goods or services were provided, the acknowledgment must explicitly state this.

Noncash contributions have more stringent substantiation requirements. For noncash contributions exceeding $250, a written acknowledgment from the charity is also necessary, describing the donated property and indicating whether any goods or services were provided in exchange. If the value of a noncash contribution is more than $500, additional details must be recorded, including the date and manner of acquisition, and the cost or other basis of the property. For noncash contributions valued over $5,000, a qualified appraisal is generally required. This appraisal must be obtained from a qualified appraiser before the due date of the tax return (including extensions) and attached to the return.