How much does your business tax liability go down with a donation to a charity?
Tuesday, September 7th, 2010 at
4:05 am
Can someone one tell me what the reduction in tax liability would be (all things being equal and assuming all normal deductions are in place) for a business that has mil in AGI and donated 0k to a 501(c)3 charity.
I understand that you can give up to 50% of your AGI, but in this case my liability without the donation would be 330k, so if I donated the same amount to a charity….how much would i still owe the gov’t?
Filed under: Retirement Planning
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If the business is a corporation the maximum deduction for charitable donations is 10% of the corp’s taxable income.
If the business is a sole proprietorship and the AGI on your tax return is $1 mil, most likely all of the $330k of a donation would be in the 35% bracket so your savings would be 35% of the $330k or $115,500.
One word though. If this is for a 2008 tax return, it’s too late to make a donation that will reduce your tax liability. Any donation now would be reflected on your 2009 return next year.
If you are a sole proprietor or a single person LLC then charitable contributions do not go on the business portion of your tax return (Schedule C) they go on the personal portion of your tax return and are subject to rules regarding Schedule A deductions. If you are an 1120S corporation charitable deductions are passed through to the shareholders and do not reduce AGI. Charitable contributions decrease taxable income not taxes so if you donated 330k it would reduce your tax liability by approximately 200K on your personal return.
Lee, Enrolled Agent
This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to learn more.
I would try http://www.taxadvicenow.info