Key Takeaways
- When your business gives back, make sure it’s documented correctly so your tax professional can secure any potential tax benefits.
- Charitable contributions to qualified 501(c)(3) organizations can be deductible.
- Marketing-related giving (like sponsorships, branded gifts, or employee parties) often counts as an ordinary and necessary business expense, which is typically 100% deductible.
- Your donation or expense must be paid or incurred before December 31, and you must keep the proper records, or the expense may be denied.
In the flurry of year-end business tasks, your heart-driven motive to give back hits up against a practical question:
Can I give generously without hurting my bottom line?
Well-intentioned end-of-the-year giving can become a missed opportunity if the details aren’t right before December 31st.
How should I account for year-end charitable contributions?
First, before you give, you’ll need to check that the recipient of your gift is an approved 501(c)(3) nonprofit. The IRS “Tax Exempt Organization Search” tool can help.
(Donations to individuals, political campaigns, or your favorite non-qualified Rockville, MD organizations don’t count.)
How we classify gifts to charity in your books depends on your business structure.
For pass-through entities (sole proprietorships, partnerships, S-corps, most LLCs): The holiday donation benefit flows directly to your personal return. But it only saves you money if you choose to itemize instead of taking the standard deduction. So, we’ll track this expense separately, because your tax preparer will need to guide you on claiming it on your personal return.
For C-corporations: The company itself deducts the donation directly on its corporate return. We’ll make sure it’s properly recorded in the Corporate Ledger. Your tax preparer will monitor the deduction limit (25% of taxable income) and any 5-year carryforward.
How do we classify and value donations of inventory, food, or volunteer time?
If you give goods instead of cash, the value we record for the donation is typically limited to your cost basis, not the retail value.
Except for certain enhanced deductions like qualified food donations for restaurants, grocers, and the like, which may qualify for a higher value. Your tax preparer will calculate the final deductible amount of the lesser of…
(a) fair market value minus half the ordinary income you would have earned, or
(b) twice your cost basis.
And if you volunteer over the holiday season, you can’t deduct the estimated dollar value of your or your team’s time. But you can deduct unreimbursed, out-of-pocket expenses related to volunteer work (like mileage, supplies, or parking), so it’s important to make sure those expenses are recorded.
What records do I need for charitable contribution deductions?
Here’s your charitable donations documentation checklist:
-Keep canceled checks or credit card statements for all donations.
-For gifts of $250 or more, get a written acknowledgment from the charity stating whether you received anything in return.
-For noncash donations over $500, file Form 8283.
-For noncash gifts over $5,000, you’ll also need a qualified appraisal.
What other types of end-of-the-year giving can be classified as business expenses?
Say, for example, you sponsor a charity 5K with your logo on the shirts, donate branded gift baskets to a community auction, or pay for signage at a fundraiser.
If your business gains publicity or goodwill in return for any of those marketing activities, it’s classified as an “ordinary and necessary” expense (regardless of business type). We will record it as a 100% deductible business expense.
Gifts to your clients should be tracked carefully. The deductible limit is $25 per recipient per year. Incidental costs (engraving, shipping, packaging) don’t count toward that $25 limit.
And for holiday-inspired employee appreciation:
- Cash or gift cards must be processed through payroll. They count as taxable wages (subject to withholding), but the business gets a full deduction.
- De minimis gifts (like chocolates or small gift baskets) are non-taxable to employees and still fully deductible.
- Holiday parties held primarily for employees are 100% deductible.
FAQs
“Can my LLC write a check to a charity and deduct it?”
It depends. If you’re taxed as a sole proprietor or partnership, the gift will show up on your personal return, not in your business’s ledger (unless it qualifies as a marketing expense).
“Are donations to a local GoFundMe or family in need tax-deductible for my business?”
No, they’re not deductible. Only contributions to IRS-recognized charities qualify.
“Are donations of leftover inventory tax deductible?”
You can deduct your cost (not retail value), unless it’s qualified food inventory… which may get you an enhanced deduction.
“What happens if I miss the acknowledgement letter for a $500 donation?”
The IRS requires this documentation, or they may disallow the deduction. Always request and keep written proof showing the amount, date, and a statement that no goods or services were received in return.
“Are holiday gifts to employees taxable?”
Cash and gift cards are taxable. Modest, occasional tangible gifts (like holiday sweets or a mug) are de minimis and tax-free to the employee.
“Can I count volunteer time as a donation for tax deduction purposes?”
No, you can’t deduct the value of your time. But you can deduct unreimbursed expenses tied directly to volunteering.
“If my business sponsors a charity gala and I attend, is that deductible?”
Yes, but subtract the fair market value of any benefits you receive (like dinner or tickets) to calculate the deductible portion.
Final thoughts
Whatever your approach to end-of-the-year giving in your business, there’s one thing that every small business owner has to prioritize: document everything now. Because missing receipts can turn a generous donation into a non-allowable expense in the books.
And if you’re not sure which approach to year-end giving makes the most sense for your business’s situation, let’s schedule a call to review the classifications in time for the holiday season: