Can my subchapter S corporation make my charitable donation?

Discussion in 'Tax' started by Richard Piasecki, Dec 8, 2005.

  1. Greetings.

    I am the sole shareholder for a Subchapter S corporation I
    started several years ago for my business. I have a
    substantial amount of money in my business bank account
    earmarked for a charitable donation. Obviously, I need to
    make this donation before the end of the year.

    My question is, can I write the check directly from the
    business bank account or do I have to first transfer the
    money to my personal account?

    I want to ensure that the entire donation is tax deductible
    and I'm not sure that that will happen if the donation is
    made by the business instead of directly by me. I would
    prefer to have the business donate the money. I'm just
    looking for confirmation that I won't run afoul of the IRS
    if I do that. If it matters, the donation is 10% of the
    gross business income for the year.

    I thank you for reading this and for your response.

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
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    Richard Piasecki, Dec 8, 2005
    #1
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  2. Richard Piasecki wrote:

    > I am the sole shareholder for a Subchapter S corporation I
    > started several years ago for my business. I have a
    > substantial amount of money in my business bank account
    > earmarked for a charitable donation. Obviously, I need to
    > make this donation before the end of the year.
    >
    > My question is, can I write the check directly from the
    > business bank account or do I have to first transfer the
    > money to my personal account?
    >
    > I want to ensure that the entire donation is tax deductible
    > and I'm not sure that that will happen if the donation is
    > made by the business instead of directly by me. I would
    > prefer to have the business donate the money. I'm just
    > looking for confirmation that I won't run afoul of the IRS
    > if I do that. If it matters, the donation is 10% of the
    > gross business income for the year.
    >
    > I thank you for reading this and for your response.


    Either way is fine. If the corporation makes the donation,
    AND provided of course that the organization qualifies for
    the donation being a charitable contribution, the amount is
    what's known as a "pass through" item, and will then appear
    on your schedule k-1 thus allowing you to include the amount
    on your own schedule a.

    ChEAr$,
    Harlan Lunsford, EA n LA

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    Harlan Lunsford, Dec 9, 2005
    #2
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  3. "Richard Piasecki" <> wrote

    > My question is, can I write the check directly from the
    > business bank account or do I have to first transfer the
    > money to my personal account?


    The "S" corporatiojn can pay the charitable contribution.
    Charitable contributions are not an expense of the business,
    but flow through on the K-1 to your personal return to be
    taken on Schedule A.

    > I want to ensure that the entire donation is tax deductible


    If you can itemize your deductions, and there are no AGI
    limitations, the amount will be taken on Schedule A.

    > and I'm not sure that that will happen if the donation is
    > made by the business instead of directly by me. I would
    > prefer to have the business donate the money. I'm just
    > looking for confirmation that I won't run afoul of the IRS
    > if I do that. If it matters, the donation is 10% of the
    > gross business income for the year.


    It doesn't matter, as the company ian't taking the
    deduction, you will.

    You should be, as you know, asking your business accountant
    (CPA or EA) about this.

    --
    Paul Thomas, CPA


    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    Paul Thomas, CPA, Dec 9, 2005
    #3
  4. Richard Piasecki

    Guest

    Because S-Corp income flows directly to you as personal
    income, the S-Corp itself pays no taxes; the shareholders
    pay the taxes on all income generated by the S-Corp. Why
    not just write the check business-to-self, and then make the
    contribution to charity by way of personal check? That way,
    it's easy to enter it on your 1040.

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    , Dec 9, 2005
    #4
  5. Harlan Lunsford <> wrote:
    > Richard Piasecki wrote:


    >> I am the sole shareholder for a Subchapter S corporation I
    >> started several years ago for my business.
    >>
    >> My question is, can I write the check directly from the
    >> business bank account or do I have to first transfer the
    >> money to my personal account?


    > Either way is fine. If the corporation makes the donation,
    > AND provided of course that the organization qualifies for
    > the donation being a charitable contribution, the amount is
    > what's known as a "pass through" item, and will then appear
    > on your schedule k-1 thus allowing you to include the amount
    > on your own schedule a.


    Is there a limitation on this kind of deduction, e.g. the
    shareholder's basis in his stock?

    Stu

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    Stuart A. Bronstein, Dec 12, 2005
    #5
  6. Richard Piasecki

    kmoorecpa Guest

    > I am the sole shareholder for a Subchapter S corporation I
    > started several years ago for my business. I have a
    > substantial amount of money in my business bank account
    > earmarked for a charitable donation. Obviously, I need to
    > make this donation before the end of the year.
    >
    > My question is, can I write the check directly from the
    > business bank account or do I have to first transfer the
    > money to my personal account?
    >
    > I want to ensure that the entire donation is tax deductible
    > and I'm not sure that that will happen if the donation is
    > made by the business instead of directly by me. I would
    > prefer to have the business donate the money. I'm just
    > looking for confirmation that I won't run afoul of the IRS
    > if I do that. If it matters, the donation is 10% of the
    > gross business income for the year.
    >
    > I thank you for reading this and for your response.


    It doesn't make any difference whether the check is written
    by you personally or by the corporation.

    If the corporation makes the donation, it will show up on
    your K-1 as a charitable donation. You will then include it
    on your 1040, Schedule A.

    If the corporation writes a check to you, it will show up as
    a distribution to you on the K-1. Then when you write the
    check to the charity, you'll inculde it on your 1040,
    Schedule A.

    Same result either way.

    Hope this helps.
    Karen Moore, CPA
    Illinois

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    kmoorecpa, Dec 12, 2005
    #6
  7. Stuart A. Bronstein <> wrote:
    >> Richard Piasecki wrote:


    >>> I am the sole shareholder for a Subchapter S corporation I
    >>> started several years ago for my business.


    > Is there a limitation on this kind of deduction, e.g. the
    > shareholder's basis in his stock?


    I don't see why there would be, since the donation is still
    income to the shareholder (that is, whatever income caused
    the money to be in the corp's bank account so it could make
    the donation is equally income whether it was donated or
    handed to the shareholder).

    Seth

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    Seth Breidbart, Dec 13, 2005
    #7
  8. Stuart A. Bronstein wrote:
    > Harlan Lunsford <> wrote:


    >> Either way is fine. If the corporation makes the donation,
    >> AND provided of course that the organization qualifies for
    >> the donation being a charitable contribution, the amount is
    >> what's known as a "pass through" item, and will then appear
    >> on your schedule k-1 thus allowing you to include the amount
    >> on your own schedule a.


    > Is there a limitation on this kind of deduction, e.g. the
    > shareholder's basis in his stock?


    There's always a possible fly in the ointment, and Stu has
    identified it. Didn't occur to me, since ALL my S
    corporations are profitable, year after year, and
    shareholders never make charitable contributions unless they
    have profits.

    But yes, such might not eventually be deductible on schedule
    a subject to shareholder's less than zero basis.

    ChEAr$,
    Harlan Lunsford, EA n LA

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    Harlan Lunsford, Dec 13, 2005
    #8
  9. Richard Piasecki

    Joe Btfsplk Guest

    "Stuart A. Bronstein" <> wrote:
    > Harlan Lunsford <> wrote:
    >> Richard Piasecki wrote:


    >>> I am the sole shareholder for a Subchapter S corporation I
    >>> started several years ago for my business.
    >>>
    >>> My question is, can I write the check directly from the
    >>> business bank account or do I have to first transfer the
    >>> money to my personal account?


    >> Either way is fine. If the corporation makes the donation,
    >> AND provided of course that the organization qualifies for
    >> the donation being a charitable contribution, the amount is
    >> what's known as a "pass through" item, and will then appear
    >> on your schedule k-1 thus allowing you to include the amount
    >> on your own schedule a.


    > Is there a limitation on this kind of deduction, e.g. the
    > shareholder's basis in his stock?


    I think it would be deductible as a pass-thru item the same
    as if he had borrowed the money from the bank, then donated
    it. It might reduce his basis, but I don't think the basis
    reduction would make it non-deductible on his Schedule A.

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    Joe Btfsplk, Dec 13, 2005
    #9
  10. "Joe Btfsplk" <> wrote:
    > "Stuart A. Bronstein" <> wrote:
    >> Harlan Lunsford <> wrote:


    >>> Either way is fine. If the corporation makes the donation,
    >>> AND provided of course that the organization qualifies for
    >>> the donation being a charitable contribution, the amount is
    >>> what's known as a "pass through" item, and will then appear
    >>> on your schedule k-1 thus allowing you to include the amount
    >>> on your own schedule a.


    >> Is there a limitation on this kind of deduction, e.g. the
    >> shareholder's basis in his stock?


    > I think it would be deductible as a pass-thru item the same
    > as if he had borrowed the money from the bank, then donated
    > it. It might reduce his basis, but I don't think the basis
    > reduction would make it non-deductible on his Schedule A.


    The point isn't whether it's deductible, but how much is.
    For things like depreciation the S-corporation shareholder
    is limited in his deductions to his basis in the stock. I
    was curious whether that rule would also apply to charitable
    deductions.

    Stu

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    Stuart A. Bronstein, Dec 14, 2005
    #10
  11. >> Is there a limitation on this kind of deduction, e.g. the
    >> shareholder's basis in his stock?


    > There's always a possible fly in the ointment, and Stu has
    > identified it. Didn't occur to me, since ALL my S
    > corporations are profitable, year after year, and
    > shareholders never make charitable contributions unless they
    > have profits.
    >
    > But yes, such might not eventually be deductible on schedule
    > a subject to shareholder's less than zero basis.


    I start an S corp with $100. It borrows $5,000 from a bank.
    It uses $1,000 to make a charitable contribution.

    Are you saying that I don't get the tax benefit? Why not?

    If the corp hands me the $1,000 and I donate it, then I do
    (and the "handing me the $1,000" isn't a taxable event).

    Does it matter whether I cosign the loan (that is, is the
    limitation "at risk" rather than "basis")?

    Seth

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    Seth Breidbart, Dec 16, 2005
    #11
  12. Seth Breidbart wrote:

    > I start an S corp with $100. It borrows $5,000 from a bank.
    > It uses $1,000 to make a charitable contribution.
    >
    > Are you saying that I don't get the tax benefit? Why not?


    You have losses in excess of basis, which are suspended
    until you get basis.

    > If the corp hands me the $1,000 and I donate it, then I do
    > (and the "handing me the $1,000" isn't a taxable event).


    It most certainly is a taxable event. You have a
    distribution in excess of basis.

    > Does it matter whether I cosign the loan (that is, is the
    > limitation "at risk" rather than "basis")?


    You don't get basis for the S-corp's debt, regardless of
    whether you co-sign. The only way to get basis is for you
    to personally borrow the money, then loan it to the S-corp.
    You then have Sch B interest income from the corp, and Sch E
    pg2 interest expense, in addition to the normal pass-through
    stuff.

    Phoebe :)

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    Phoebe Roberts, EA, Dec 17, 2005
    #12
  13. Seth Breidbart wrote:
    > Stuart A. Bronstein <> wrote:
    >>> Richard Piasecki wrote:


    >>>> I am the sole shareholder for a Subchapter S corporation I
    >>>> started several years ago for my business.


    >> Is there a limitation on this kind of deduction, e.g. the
    >> shareholder's basis in his stock?


    > I don't see why there would be, since the donation is still
    > income to the shareholder (that is, whatever income caused
    > the money to be in the corp's bank account so it could make
    > the donation is equally income whether it was donated or
    > handed to the shareholder).


    Remember of course that each shareholder's basis has to be
    continually updated and computed.

    Say the S corp has two shareholders ( I have such a client)
    50/50 ownership, yet one wants to donate 1000$ to HIS
    church, and his "partner" wants to donate only 100$ to HIS
    church. Since the corporation can't take a deduction for
    1100$, it's a pass through item to each according to his
    means; and basis.

    ChEAr$,
    Harlan

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Harlan Lunsford, Jun 2, 2006
    #13
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