Make Church and Charity Gifts Business Write-offs

The present rules after the One Big Beautiful Bill Act (OBBBA) make it harder than ever for business owners to get a meaningful tax benefit from charitable giving.

In 2026,

The standard deduction is $16,100 for single filers and $32,000 for married couples filing jointly.
The state and local tax (SALT) deduction is capped at $40,400, with 30 percent phaseouts beginning at $505,000; and
Charitable deductions are allowed only to the extent they exceed 0.5 percent of adjusted gross income.

And you have to get the money you want to contribute personally in your hot hands. To achieve that, you likely have to pay payroll, self-employment, and other taxes.

But as a business owner, you can do better by structuring your monetary support for a church, school, or other Section 501(c)(3) organization as an ordinary and necessary business expense rather than as a Schedule A charitable deduction.

Why the Business Deduction Can be Better?

When a payment to a charitable organization qualifies as an advertising or promotional business expense, the deduction is taken on the business returns, such as a Schedule C or a corporate return.

For a Schedule C taxpayer, the business deduction can be especially valuable because the deduction reduces both income tax and self-employment tax; by contrast, a personal charitable deduction reduces only income tax.

A business deduction for the Schedule C taxpayer also reduces adjusted gross income (AGI). Lower AGI improves the value of other deductions, credits, and thresholds that are tied to AGI.

If you operate as an S or C corporation, the corporate business deduction also produces benefits superior to the individual deduction.

How to Convert a Donation into a Business Expense

Tax law does not allow you simply to relabel a gift as a business deduction.

The payment must bear a direct relationship to your business, and you must make the payment with a reasonable expectation of a financial return commensurate with the amount paid. The economic return does not have to occur, but the expectation must be reasonable when the payment is made.

In practical terms, the payment has to function as advertising, promotion, client development, customer retention, or a similar business activity. The more overt the business purpose, the stronger your case for the deduction.

Strategy 1: Use the payment as advertising

A payment to a charity qualifies as a business expense when it is made to attract or retain customers.

In Marcell, the owner of a trucking company contributed cash to a hospital because he wanted to impress the chairman of the fundraising drive, who was a potential customer. The court allowed the deduction as a business expense because the taxpayer had a reasonable expectation of a commensurate return.

For example, a business can sponsor a charity fundraiser; pay for the venue, food or printed materials; and make clear during the event that it is promoting its products or services to attendees. If the event is structured as a promotional activity, those costs can qualify as business expenses.

Strategy 2: Tie the payment to sales

A second strategy is to tell customers that the business will donate a portion of sales proceeds to charity. This can stimulate demand by giving customers an additional reason to buy from the business.

In Revenue Rising 72-314, the IRS approved a comparable arrangement and treated the payments as business expenses rather than charitable contributions.

The same principle applies when a business advertises that each purchase of a particular product or service will trigger a payment to a named charity. Because the arrangement is designed to drive revenue, the payment is promotional in character,

Strategy 3: Use community branding

Revenue Ruling 72-314 approved a stockbroker corporation’s payments equal to 6 percent of brokerage commissions to a neighborhood charity. The brokerage’s office was located in that neighborhood, and the payments were initiated to promote the firm, distinguish it from competitors, and attract business by telling prospects that doing business with the brokerage helped the local community at no extra cost.

The IRS stressed the advertising and competitive aspects of the arrangement. Because there was a reasonable expectation that the program would attract and retain customers, the payments were deductible as advertising expenses.

Strategy 4: Use coupons

Another approved strategy is the charitable coupon arrangement.

In Revenue Ruling 55-514, a corporation attached coupons to its products stating that when a customer bought the product and submitted the coupon to a listed charity, the business would make a payment to that charity. The IRS ruled that the payments made to redeem the coupons were deductible as business expenses.

To strengthen the deduction, the business should write the checks directly to the charities from the business account. A separate business checking account is especially important for a sole proprietor because it helps show that the business – not the individual – made the payment.

Strategy 5: Use a rebate approach

In Marquis, a sole-proprietor travel agent made payments to charities that generated substantial travel business for her. She treated the payments as a substitute for the sales calls her competitors used to obtain business, and the court allowed the deductions as business expenses.

The decision turned on the business nature of the payments. The amounts were tied to expected or actual business, were paid from the business account, and were distinct from the taxpayer’s separate, personal charitable gifts.

What the IRS says

The IRS distinguishes between gratuitous charitable contributions and business expenses.

A charitable contribution is a voluntary transfer made without receipt or expectations of substantial financial or economic benefit.

By contrast, a payment to a charitable organization is deductible as a business expense when it bears a direct relationship to the taxpayer’s trade or business and is made with a reasonable expectation of a commensurate return.

If the taxpayer receives, or reasonably expects to receive, substantial benefits beyond those following to the general public, the payment is not a charitable contribution in the usual sense and may instead qualify as a business expense under Section 162.

Be Overt and Keep Records

A weak record can sink the deduction. In Hartless Linen Service Co., a closely held corporation sends checks to 86 churches with a note asking to be informed of prospects who might need its services. The court held that the payments were charitable contributions rather than business expenses because the corporation could not demonstrate that the payments were part of a concrete, trackable promotional program that generated business.

The lesson is simple: be overt about the business purpose, and maintain proof. Sponsorship agreements, promotional materials, referral tracking, rebate records, internal memoranda, and a reasonable return-on-investment estimate can all help establish the required business nexus.

FAQs

Why is it harder to benefit from charitable donations personally?
Many taxpayers will no longer itemize deductions because the standard deduction is so high. Even when they do itemize, charitable deductions may provide limited tax savings due to AGI thresholds and SALT limitations.
Can I simply relabel a donation as a business expense?
No.
The IRS requires:
- a direct relationship to the business, and
- a reasonable expectation of financial return.
- The payment must function as advertising, promotion, customer retention, or a similar business activity.
What did Revenue Ruling 72-314 approve?
The IRS approved a stockbroker firm’s program where it donated part of its commissions to a neighborhood charity to:
- distinguish itself from competitors,
- attract customers, and
- strengthen community goodwill.
The IRS treated the payments as advertising expenses.

BergerCPAFirst, with over 30+ years of experience, offers comprehensive tax preparation services for individuals and businesses nationwide. Our commitment is to provide personalized attention while ensuring compliance and maximizing tax benefits. If you have any questions or would like to schedule a consultation, please call (201) 587-9200 or send us an inquiry.