Charitable Donations and Your Business: 2026 Deduction Rules

The charitable deduction rules for 2026 changed in ways that matter to business owners: C corporations now lose the deduction on gifts up to 1% of taxable income, individuals who itemize face a 0.5% of AGI floor, and people who take the standard deduction get a new deduction of up to $1,000 ($2,000 joint). How much your business donations actually save depends on whether you run a sole proprietorship, a pass-through entity or a C corporation. This guide covers each case, the receipts you need and a worked example.

This is general information, not tax advice; check your own situation with a tax professional.

What changed for the charitable deduction in 2026

The One Big Beautiful Bill Act (OBBBA) rewrote several charitable provisions effective for tax years beginning after December 31, 2025:

Taxpayer	Rule through 2025	Rule from 2026
C corporations	Deduct up to 10% of taxable income	Deduct only the amount above 1% of taxable income, still capped at 10%
Individuals who itemize	Deduct gifts subject to AGI limits (60% for cash to public charities)	Only gifts above 0.5% of AGI count; 60% cash limit made permanent
Top-bracket itemizers	Deduction worth up to 37 cents per dollar	Tax benefit capped at 35 cents per dollar
Non-itemizers	No charitable deduction	Up to $1,000 single, $2,000 joint, for cash gifts to qualifying public charities

Law firm Greenberg Traurig's summary of the new limitations on charitable deductions is a useful plain-language overview of these changes.

How business structure affects the charitable deduction in 2026

Sole proprietors and single-member LLCs

A sole proprietor cannot list donations as a business expense on Schedule C. Even if the check comes from your business account, the gift is treated as a personal charitable contribution. If you itemize, it goes on Schedule A subject to the new 0.5% floor. If you take the standard deduction, cash gifts to qualifying charities count toward the new $1,000 deduction. Our Schedule C guide for freelancers shows what does belong on the business return.

Partnerships and multi-member LLCs

A partnership does not deduct charitable contributions itself. It reports each partner's share on Schedule K-1, and the partners claim it on their personal returns. The same applies to S corporations, which pass donations through to shareholders. Our new Schedule K-1 guide explains where those amounts appear.

C corporations

C corporations deduct contributions on Form 1120. From 2026, the deduction is limited to the amount above 1% of taxable income and cannot exceed 10%. If total gifts exceed the 10% cap, the excess, along with the amount disallowed by the 1% floor, can be carried forward for up to five years. If total gifts stay at or under 10%, the amount below the 1% floor is simply lost.

Donation vs business expense: where the line falls

Many payments to charities are not charitable contributions at all; they are ordinary business expenses, which are fully deductible without the floors and caps. The test is what you receive in return.

Payment	Usual treatment	Why
Cash gift with nothing in return	Charitable contribution	Pure gift
Event sponsorship with logo, ads, booth	Advertising expense	You receive promotional value
Ad in a charity program or yearbook	Advertising expense	Paid marketing
Gala tickets including dinner	Contribution only above the value of the dinner	Quid pro quo
Membership dues to a chamber of commerce	Business expense (not charitable)	Chambers are not 501(c)(3) charities
Free services you donate	Not deductible	Time and labor are not property

If a charity pays you for work at a discount, the discount is not deductible either; you simply report the lower amount you received. Our nonprofit invoice template shows how to show a discounted or donated fee clearly on the invoice so both sides have a record.

Donating inventory and equipment

Product businesses often give goods instead of cash. The general rule is that a business deducts the lower of its cost basis or fair market value for inventory, and because the cost of the inventory is usually already in cost of goods sold, there may be no extra deduction. C corporations get an enhanced deduction under Section 170(e)(3) for donating inventory used for the care of the ill, the needy or infants, and businesses of all types have an enhanced rule for donated food inventory. Donated equipment is generally deducted at the lower of fair market value or adjusted basis, which may be small if you already depreciated it.

Records and receipts you need

1. Under $250 cash: a bank record, card statement or written receipt from the charity with its name, date and amount.
2. $250 or more in a single contribution: a contemporaneous written acknowledgment from the charity, received by the time you file, stating the amount and whether you received anything in return. Our donation receipt template shows the required wording.
3. Noncash gifts over $500: file Form 8283 with your return.
4. Noncash gifts over $5,000: a qualified appraisal is usually required, with some exceptions such as publicly traded securities.
5. Sponsorships: keep the sponsorship agreement or the charity's invoice showing the advertising you received.

Track these records alongside your other expenses as covered in our guide on how to track business expenses.

Worked example: three owners, the same $5,000 gift

Each owner gives $5,000 in cash to a local food bank in 2026. Figures are illustrative.

	Sole proprietor (itemizes)	Sole proprietor (standard deduction)	C corporation
Relevant income	AGI $150,000	AGI $90,000	Taxable income $300,000
Floor	0.5% = $750	None	1% = $3,000
Deductible amount	$4,250	$1,000 (cap)	$2,000
Marginal rate	24%	22%	21%
Approximate tax saved	$1,020	$220	$420

The corporation's result is the surprise. Its $3,000 floor wipes out most of the gift, and because total giving is under the 10% cap, the disallowed amount does not carry forward. If the corporation instead gave $15,000 every third year, the floor would still be $3,000 in that year, $12,000 would be deductible, and the deduction would save about $2,520 in tax, much more than three separate $5,000 gifts would produce.

Now suppose the corporation instead paid the same $5,000 to sponsor the food bank's 5K run, receiving its logo on race shirts and banners. That is likely an advertising expense, fully deductible, saving $1,050 at 21%.

Planning ideas for 2026 and beyond

• Bunching. Itemizers and corporations can combine several years of giving into one year to clear the floors, possibly through a donor-advised fund for individuals.
• Consider sponsorships. If you want visibility, structure support as a genuine sponsorship with defined promotional benefits.
• Give appreciated stock personally. Owners who itemize can often deduct fair market value of long-held stock and avoid capital gains tax.
• Time year-end gifts. A check mailed by December 31 or a card charge made by December 31 counts in 2026. Coordinate this with the rest of your year-end tax planning checklist.
• Do not let tax drive the gift. Even the best case saves only part of what you give.

How to record business donations in your books

Even when a donation is not a business deduction, it still leaves the business bank account, so it needs a clean entry. How you record it depends on your structure:

• Sole proprietors and single-member LLCs: record the gift as an owner draw, not as an expense. It then flows to your personal return rather than reducing Schedule C profit.
• Partnerships and S corporations: record it in a separate charitable contributions account so your preparer can report it on the K-1s as a separately stated item.
• C corporations: record it in a charitable contributions account and track any carryforward from prior years.
• Sponsorships: record them under advertising or marketing, with the sponsorship agreement attached to the transaction.

Attach the charity's acknowledgment letter or receipt to the bookkeeping entry, or save it in the same folder as your year-end records. Keeping donations out of your general expense accounts prevents the most common error: a preparer accidentally deducting a personal gift as a business expense, which is exactly the type of item that draws questions in an exam. Our bookkeeping basics guide covers how to set up these accounts.

State tax considerations

States do not all follow the federal rules. Some states have their own charitable credits, for example for gifts to specific scholarship or rural hospital programs, and some do not follow the new federal floors for corporations. Business owners in high-tax states should also coordinate giving with any pass-through entity tax election, because entity-level state tax payments and charitable deductions interact differently with the federal SALT cap. If you give significant amounts, ask your preparer to model both federal and state results before December 31.

Common mistakes

• Deducting donations on Schedule C, which the IRS disallows.
• Claiming the value of free services, pro bono hours or discounts.
• Missing the written acknowledgment for gifts of $250 or more; without it, the deduction can be denied entirely.
• Assuming the new $1,000 non-itemizer deduction covers gifts to donor-advised funds; it does not.
• Giving to organizations that are not qualified charities, such as political groups or individuals. Check the IRS Tax Exempt Organization Search before giving.

Showing donated work on an invoice

When you donate services, send the charity an invoice anyway. List the work at your normal rate, apply a 100% discount line labeled as an in-kind donation, and show a balance of zero. It documents the gift for the charity's records and reminds them what the work is worth. Our guide to showing a discount on an invoice covers the layout. You still cannot deduct the discount, but the record is useful if the relationship turns into paid work.

Whether you bill a charity at full rate, a discount or zero, a clear invoice keeps everyone's records straight. Make one with our free invoice generator: no sign-up, add your discount line, and download the invoice as a PDF.