Charitable Donations From a Business Account: How to Record Them

Is a gift to charity from the business account a business expense?

Generally no. A charitable gift is not an ordinary business expense, so it stays out of the deductions that reduce business profit. The Schedule C instructions say not to include charitable contributions in other expenses, and Publication 334 lists them among costs you usually cannot deduct as business expenses.

Any deduction comes from the separate charitable rule, and who claims it depends on the return the business files:

The return decides the row, not the state-law label. A single-member LLC files Schedule C (or Schedule E or F for rental or farm activity) unless it elected to be taxed as a corporation (Schedule C instructions). An LLC with two or more members is a partnership unless it elected corporate treatment (Form 1065 instructions). An LLC owned only by spouses as community property may instead be treated as a single-owner business (Revenue Procedure 2002-69), so follow the return it files.

One exception: a payment that is really advertising is a business expense (see the sponsorship section below).

A case is not simple when the gift was made for one owner's cause, a corporation's gifts may exceed its limit, the business gave products or other property, or gifts were booked as ordinary expenses on a return already filed. Gather:

• the charity's written receipt and the bank record
• the return type and each owner's percentage
• a board minute, for a corporation
• the cost and purchase date of anything given other than cash

Which account or category do I book a charitable donation to?

Not an ordinary expense category. In your chart of accounts, use an equity draw account for an owner's own gift, and a separate charitable contributions account, kept apart from operating expenses, for a gift the business makes. No tax rule names an account. This is a bookkeeping choice that lets the gift be pulled out of ordinary business income when the return is prepared. Software menus differ, so pick the account type, not only the name.

1. Create the account once, with the type in the table.
2. Post each payment with the charity's legal name as payee, and attach its receipt.
3. Scan the profit and loss for gifts coded to advertising, general donations or miscellaneous, and move them. If the year is already filed, see correcting a filed business return.
4. At year-end, give the preparer the account total with the receipts and acknowledgments.

Net income on a partnership or S corporation's books will be lower than its return's ordinary business income by the amount of the gift. That is expected; the preparer reconciles book income to return income.

Sole proprietor or single-member LLC: how do I record a donation, and where does it go on my return?

Record it as an owner's draw. The gift is the owner's, paid from the business account, and it never reaches Schedule C. The entry is covered in recording an owner's draw; a personal bill paid from the business account is the same entry (personal expenses paid from the business account).

On the owner's own return the gift is deductible in one of two ways:

• Itemizing on Schedule A. The gift counts only to the extent total gifts exceed 0.5% of the contribution base, which is generally adjusted gross income (section 170). The owner's income-based limits also apply (Publication 526).
• Not itemizing. An individual may deduct up to $1,000 ($2,000 on a joint return) of cash gifts to certain qualified organizations (Topic 506). Gifts to donor-advised funds and supporting organizations do not count, and noncash gifts and carryovers do not qualify (IRS).

Partnership or multi-member LLC: how is a donation recorded, and what do the partners get?

The partnership does not deduct the gift. It reports the amount separately, meaning on its own line instead of netted into business profit, and each partner takes a share on their own return. The law bars the partnership's own deduction (section 703) and has each partner take a share of the gift into account separately (section 702).

Cash gifts go on Schedule K line 13a and noncash gifts on line 13b. Each partner's share appears in K-1 box 13 (Form 1065 instructions). The gift does not reduce the ordinary business income on page 1. The share also lowers the partner's basis, their running tax investment in the partnership (section 705). A partner can deduct the share only up to that basis, and the rest waits for a year with enough basis; the part of a property gift's value above its adjusted basis is outside that limit (section 704(d)). Each individual partner then claims it as in the sole proprietor section above. The IRS pages and instructions cited here do not say whether a K-1 share of a cash gift counts toward the non-itemizer limit, so ask the preparer before relying on it.

In the books, post the gift to the charitable contributions account. At year-end, split the total across the partners' capital accounts by their shares (LLC equity accounts, partner capital accounts). The partnership agreement sets each share, provided the split has a real economic effect on the partners, not just a tax purpose; otherwise shares follow each partner's interest in the partnership (section 704).

If only one partner is meant to benefit, it may be that partner's draw, or a partnership gift the agreement allocates to that partner. Which one depends on the agreement and the other partners' consent, so settle it before a K-1 is issued.

S corporation: how is a donation recorded, and what if the gift was meant for one owner's cause?

An S corporation does not deduct the gift either. It reports cash gifts on Schedule K line 12a, and each shareholder's pro rata share goes in K-1 box 12 (Form 1120-S instructions). Shares are assigned per share per day (section 1377), so the split follows stock ownership, not who asked for the gift. Each shareholder then claims the share as in the sole proprietor section above. As for partners, the IRS pages and instructions cited here do not say whether a K-1 share of a cash gift counts toward the non-itemizer limit, so ask the preparer before relying on it.

The share also lowers each shareholder's stock basis: by the share of the cash, or for donated property by the share of its adjusted basis, not its value (section 1367); see how a shareholder's basis changes. A shareholder can deduct the share only up to stock and debt basis, with the rest carried forward; the part of a property gift's value above its adjusted basis is outside that limit (section 1366(d)). Book an S corporation's gift in the year it is paid; unlike a C corporation, it cannot count a gift paid after year-end in the year its board approved it (Form 1120-S instructions).

Whether a payment is the corporation's gift depends on the facts. If the corporation pays an owner's personal pledge, or a charity that one owner chose and the others did not, the payment may be that owner's distribution, pay or loan rather than a corporate gift. The regulation looks to the governing provisions for identical distribution rights, and distributions that differ in timing or amount are given "appropriate tax effect" on the facts (26 CFR 1.1361-1(l)).

Decide before booking:

1. If the gift served the company's own purpose and the shareholders treat it as the company's, it may be booked as a corporate gift and passed pro rata.
2. If it paid one owner's pledge or chosen cause, it may be that owner's distribution, pay or loan. A distribution to one shareholder alone differs in amount from the others' and may need correcting. See recording S corporation distributions, unequal distributions and personal expenses paid by an S corporation, and have the facts reviewed before booking.

C corporation: how is a donation recorded, and what limits apply?

A C corporation deducts the gift itself, on Form 1120 line 19. Book it to a charitable contributions expense account. The books can show the whole gift while the return allows less, so track the difference. Public Law 119-21 added the floor for tax years beginning after December 31, 2025, so a fiscal-year corporation's first affected year may start later than the calendar year (section 70426).

A board resolution is required only for the accrual election. A minute that approves the charity and the amount is still worth keeping, because it shows the gift was the corporation's decision. If an owner's personal pledge is behind the gift, see a C corporation paying owner expenses. A net operating loss carryover changes how the cap is figured, so a corporation with one should have the return prepared with that in view (Form 1120 instructions).

Does the charity qualify, and what about gifts to individuals, crowdfunding or political groups?

Only a gift to a qualified organization is a charitable contribution. Ask the organization whether it qualifies, or use the IRS search tool named in Publication 526.

A gift that does not qualify stays out of the charitable account. A personal gift is the owner's draw, and a cost with a business purpose belongs in its own expense account.

A sponsorship, ticket or event: is it a gift or advertising?

It can be advertising, a business expense, when it bears a direct relationship to the business and the business reasonably expects a financial return commensurate with the payment (26 CFR 1.162-15(a)). The regulation's example is a sole proprietor who pays a church for a half-page ad in a concert program that shows the business's web address and expects new customers.

For a mixed payment, split it. The charity's acknowledgment must say whether it gave goods or services and give a good-faith value (Topic 506), so use it to split.

Donated products or other property: what is deductible and how is it recorded?

Credit inventory at cost, not selling price. Debit charitable contributions (an owner's draw for a sole proprietor) only if the item was in opening inventory, bought in an earlier year. If it was bought and given in the same year, its cost stays in cost of goods sold and there is no charitable deduction, so do not book it as a gift. Note the purchase date, because the return treats the two cases differently. For unsold or obsolete stock, see writing off dead stock.

Publication 334 and Publication 526 describe these two cases (26 CFR 1.170A-1(c)(4)). Other business property is deducted at fair market value less the ordinary income a sale would have produced, such as depreciation recapture, which generally limits it to basis; property worth less than basis is limited to fair market value (Publication 526). A C corporation applies the same reduction under Publication 542. A partnership or S corporation reports the property's fair market value and adjusted basis to each owner. Most other property (not cash, inventory or publicly traded securities) with a deduction over $5,000 needs a qualified appraisal, with its details on Form 8283 Section B. The appraisal itself is attached only above $500,000 (section 170(f)(11); Form 8283 instructions). Similar items count together; get the appraisal before filing.

Inventory given for the care of the ill, the needy or infants has its own rule and can allow more than cost. It covers surplus food from sole proprietors, partnerships, S corporations and C corporations, and a C corporation's other inventory too (section 170(e)(3)). It needs a written statement from the charity, so have such a gift reviewed before booking it at cost (Publication 526; Publication 542).

Free work or staff time given to a charity is not a gift (Publication 526).

What records do I keep, and by when?

Keep the charity's proof for every gift, and a written acknowledgment for larger ones. No deduction is allowed for a gift of $250 or more without that acknowledgment.

A gift counts in the year it is delivered, not the year the bank clears it. A check counts on the date it is mailed, and a gift charged to a credit card counts in the year of the charge (Publication 526). Book it in that year; see the year-end close checklist.

These rules come from Topic 506 for individuals, from the Form 1065, Form 1120-S and Form 1120 instructions for entities, and, for the cash-gift deadline, from 26 CFR 1.170A-15. A bank record alone does not satisfy the acknowledgment rule for a gift of that size, so ask the charity for the document before the return is filed. Receipt rules are in IRS receipt requirements, a charity that cannot give a receipt is covered in lost receipts, and how long to keep records is in how long to keep business records.

Example

All amounts are illustrative US dollars.

Sole proprietor: a gift to a church

A plumber who files Schedule C pays $2,000 to a church from the business account. The bookkeeper debits owner's draw and credits the bank. Schedule C shows nothing. On the plumber's Form 1040, a single filer who does not itemize can deduct at most $1,000 of the gift for a tax year beginning after 2025, and a joint return at most $2,000. An owner who itemizes puts the gift on Schedule A, above the floor.

Two-member LLC, 50/50

Two members who share 50/50 under the agreement give $4,000 from the LLC account. The books debit charitable contributions and credit the bank. The LLC files Form 1065. The gift shows on Schedule K line 13a, not in ordinary income, and each K-1 box 13 shows $2,000. Each member's capital account and basis fall by $2,000. Assuming each member has enough basis, each claims $2,000 on their own return, subject to their own limits.

C corporation: the 1% floor

A C corporation has $100,000 of taxable income before the gift, figured as the tax rules require, and gives $5,000. The 1% floor is $1,000 and the 10% cap is $10,000. The deduction on line 19 is $4,000. The books show $5,000 of charitable contributions expense, so the return deducts $1,000 less than the books. The $1,000 under the floor is not carried forward, because the gift did not exceed the cap.

Different for you?

• The gift was paid for one owner's cause in an S corporation or LLC with several owners: the booking, who gets the deduction and the basis records all turn on it. See unequal distributions and get corporate tax help.
• A C corporation is near its cap, has a net operating loss, or gave large sums: floor, cap, carryover and loss rules interact year by year. Get corporate tax help.
• The business gave products, equipment or other property: the deduction, cost of goods sold, forms and each owner's basis all change. Get corporate tax help.
• You are not sure how the LLC or corporation is taxed: the return type decides where the gift goes, so confirm any election before booking. Get corporate tax help.
• Gifts were booked as ordinary expenses on a return already filed: see correcting a filed business return and get corporate tax help.
• The books are behind: start with the bookkeeping cleanup checklist and get bookkeeping help.
• The gift went to a foreign charity, or an owner lives in Canada: the rules differ by country. Get cross-border tax help.
• A C corporation paid an owner's personal pledge: see a C corporation paying owner expenses. If the payments span years or were deducted, get corporate tax help.