Brief Charitable Donation Guide For LLCs

Each state establishes its own set of rules for the formation of limited liability companies, and an LLC isn’t a recognized business structure for federal income tax purposes. The IRS requires LLCs to file as a partnership, a corporation or an S corporation. An LLC may make charitable contributions as long as the beneficiary qualifies under IRS regulations and the LLC keeps accounts properly for the donations.

Qualified Beneficiaries

Charitable contributions has to be made to qualified nonprofit organizations like Giving Center. The IRS describes qualified organizations as those that have a charitable, scientific, religious, literary or educational function, or that work to prevent cruelty to animals or children. Donations to a local, state or federal government qualify if the donation is for the public good. Agencies such as the American Red Cross, United Way, Boy Scouts, and similar groups also qualify, as do veterans’ organizations, nonprofit hospitals and nonprofit schools. Donations have to be made to an organization rather than to an individual.

Prohibitions

The IRS does not allow deductions for charitable contributions made to communist organizations. Civic groups, labor unions, political organizations, chambers of commerce or candidates, social clubs, lobbyists for legal reform and similar groups also do not qualify. The recipient must be a U.S. organization providing charitable services in the United States. Mexican, Canadian or Israeli charities may qualify if the donor has income from that country and the organization would have qualified as a charitable group under IRS regulations had it been founded in the United States. Donations to a qualified organization can not specify an individual to benefit from the donation. The donor may not receive any goods or services in return. If the contribution happens to include a benefit, such as tickets to a dance or some other type of event, only the amount of the donation that exceeds the fair market value of the benefit is deductible.

Type of Contributions

Charitable contributions can be made in cash, intellectual property, real estate, tangible property or inventory in order to gain a tax benefit. In order to deduct a donation of inventory, the goods must have been included in inventory during a previous year. The value when you donate inventory must be removed from opening inventory in the year in which the donation is made and excluded from cost-of-goods sold. Noncash donations exceeding $5,000 typically need a written appraisal from an appraiser.

Accounting for Contributions

If an LLC is being taxed as a corporation, it may not deduct charitable contributions as a business expense. Instead, charitable donations must be deducted separately on IRS Form 1120. Partnerships and S corporations are pass-through entities, this means all profits or losses are passed to the shareholders, who then reports them on their personal income tax returns. Partnerships and S corporations list charitable contributions on the Schedule K-1 forms that they have to issue all shareholders at year-end. The shareholders use their K-1 forms to complete their personal tax returns. Regardless of filing status, the LLC has to file an IRS Form 8283 for all noncash contributions exceeding $500. Partnerships and S corporations has to furnish a copy to each shareholder affected by the contribution.

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