Tax Write-Offs for Corporate Donations to Schools
If you run a corporation and are thinking about offering some help to schools, having your business make donations is one way to lower its corporate income tax bill. This is because a corporation can write off charitable donations on its tax return, which is filed on Form 1120. However, special tax rules apply to corporate donation deductions.
A charitable write-off is only permissible if your corporation makes donations to schools that are qualified organizations. Qualified organizations include all public schools that are supported by a government agency. If it's a private school you want to make the donation to, it must operate as a nonprofit that the Internal Revenue Service has afforded tax-exempt status. For a private school, you can always verify its tax-exempt status by accessing the “Exempt Organizations Select Check” tool on the IRS website.
The amount the corporation can write off will depend on the type of donations made to the schools. For cash donations, simply deduct the total amount donated during the year. If you offer schools corporate services at no charge, bear in mind that only the unavoidable expenses of performing those services are deductible as a donation -- you can't deduct the value of the time that you and the corporation's employees spend performing the services. And if you donate business property, the corporation can generally deduct the property's fair market value.
Corporations usually depreciate business assets that are expected to last more than one year. When donating business assets to schools, the corporation cannot take a charitable deduction for the property's fair market value if it's more than the company's adjusted basis in the asset. Adjusted basis is equal to corporation's total acquisition cost -- which is the amount reported on financial records when the asset was initially purchased -- minus the sum of all depreciation already deducted. Generally, the corporation's donation deduction is equal to the property's adjusted basis on the date it's given to a school.
Corporations are subject to limitations on the amount of charitable donations they can deduct. The maximum deduction allowable in a tax year is equal to 10 percent of the corporation's taxable income. For the purpose of this limitation, the taxable income calculation omits special items, such as net operating losses and capital loss carry-backs, for example. The IRS also requires the corporation to maintain records of all charitable donations -- not just those made to schools -- such as bank statements and canceled checks. For deductible cash donations of $250 or more, corporate records must include a receipt or other written acknowledgement from each school that receives a donation. And if deductible property donations total more than $500, Form 8283 must be prepared and filed with the company's Form 1120.