Business Charitable Contributions

Recently enacted tax legislation extended several charitable contribution provisions beneficial to businesses. The new law extends through 2011 the enhanced charitable contribution deduction for non-C corporation businesses that donate food (it must be apparently wholesome when donated). This provision is intended for non-C corporation businesses that have food inventories, such as restaurants. For non-C corporation taxpayers, deductions for donated food normally are limited to the taxpayer’s basis in the food or FMV, whichever is lower. In contrast, the enhanced deduction equals the lesser of (1) basis plus one-half the value in excess of basis or (2) two times the basis (the same enhanced deduction rule has been available to C corporations for years).

The legislation extends through 2011 the enhanced deduction for C corporations that donate books to schools. This provision is intended for C corporations that have book inventories, such as publishers and retailers.

The new law also extends through tax years beginning in 2011 the enhanced deduction for C corporations that donate computer equipment and technology to qualifying educational organizations and libraries.

Liberalized deduction rules for qualified conservation contributions were also extended by the legislation through tax years beginning in 2011. Qualified conservation contributions are charitable donations of real property interests, including remainder interests and easements that restrict the use of real property. For qualified C corporation farming and ranching operations, the maximum write-off for qualified conservation contributions is increased from the normal 10% to 100% of adjusted taxable income.

Finally, a favorable rule for S corporation donations of appreciated assets was extended through 2011. The new law restored the favorable shareholder basis rule for stock in S corporations that make charitable donations of appreciated assets. For such donations, each shareholder’s tax basis in his or her S corporation stock is only reduced by the shareholder’s pro rata percentage of the company’s tax basis in the donated assets. The extended provision is taxpayer-friendly because it leaves shareholders with higher tax basis in their S corporation shares, which is almost always beneficial to these shareholders.

Please contact us to discuss appropriate methods to maximize charitable contributions for your business or any other matter impacting your personal or business taxation.