Charitable Tax Deductions
Sole proprietorships
Sole proprietor income is taxed under personal income tax. As a result, a sole proprietorship cannot claim deductions as a business. Sole proprietorships businesses are required to declare their revenue and profit/ loss by filling schedule C or electronic Form 1040. Charitable deductions are, however, deducted through Schedule A which contains itemized tax deduction claims (IRS). Charitable contributions are deducted at the personal tax level.
100% corporate shareholder
100% corporate shareholder exists separately from the owners who are the shareholders through the principle of a separate legal entity. As a result, the corporation is allowed to make charitable contributions on their own and consequently claim the deduction through their corporate income tax filings of Form 1120 (IRS).
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A partner in a partnership
The taxation for partnership is taxed at the personal level after the profit/loss is shared among the partners. The contribution to charity made by a partnership is therefore passed to the partners based on percentages, after which they can claim tax deduction under by filling Schedule K-1 each year (IRS). The charitable deductions are awarded on the personal income tax of each of the partners based on percentages.
A 100% S-corporation shareholder
Although S-corporations are categorized as separate legal entities, they experience a different tax regime as compared to the c-corporations. Under S-corporation, the dividends are passed to the shareholders and subject to personal income tax. The individual stockholder’s income is declared through Form K and K-1 that also shows their charitable contributions that are then deducted from personal income tax. (IRS).
Example of a requirement of a qualified charitable contribution
A qualified charitable contribution refers to a contribution that is made directly from the IRA to a charitable organization. Persons who own retirement plans and aged 70 .5 years are, for example, eligible to make charity contributions using some or their IRAs (IRS).
Example of how rules might affect a decision to make a charitable contribution
Making contributions to charitable organizations is subject to limits (IRS). For example, the maximum amount that one can make a charitable contribution is limited to 50% of the adjusted gross income, which increases to 60% limit is the contribution is made in the form of cash. On the other hand, a maximum of 30% adjusted gross income is allowed for contributions involving appreciated assets. The limits may be lower for private charitable organizations.
Works Cited
IRS. "Charitable Contribution Deductions." Internal Revenue Service | An official website of the United States government , 21 Dec. 2019, www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions.
IRS. "Charitable Contributions." Internal Revenue Service | An official website of the United States government , 25 2019, www.irs.gov/charities-non-profits/charitable-contributions.
