C corporations may deduct charitable contributions made in cash or property to qualified organizations. The deduction is limited and follows strict income‑based and property‑based rules under IRC §170.
Deduction limit
A corporation may deduct charitable contributions up to 10% of taxable income. For this calculation, taxable income is computed without:
- charitable contributions
- dividends received deduction
- NOL carrybacks
- capital loss carrybacks
- Section 249 bond premium deduction
Any excess contribution may be carried forward 5 years.
Contributions of property
When donating property, the corporation generally deducts the adjusted basis, not fair market value, if selling the property would generate:
- ordinary income
- short‑term capital gain
For certain contributions, long‑term capital gain must also be removed from the deduction. These include:
- Tangible personal property used for an unrelated purpose
- Donations to certain private foundations
- Donations of intellectual property (patents, copyrights, trademarks, trade secrets, software, etc.)
Enhanced deduction for specific property
A corporation may claim an enhanced deduction for certain contributions of inventory or scientific property. The deduction is limited to the lesser of:
- basis + 50% of appreciation
- 2 × basis
This enhanced deduction applies to:
- Inventory donated for the care of the ill, needy, or infants
- Scientific property constructed by the corporation and donated within 2 years
- Computer technology donated within 3 years to U.S. educational organizations
Accrual‑basis election
A corporation using the accrual method may deduct a contribution authorized by the board during the tax year if it is paid by the 15th day of the 4th month after year‑end. This election is made on the Form 1120 return.
Special rule for donated samples
If a corporation donates sample products it received at no cost, it must include in income the amount deducted. This results in a net zero tax effect.
Summary
Corporate charitable contributions are deductible up to 10% of taxable income, with unused amounts carried forward for five years. Property donations require basis adjustments, and enhanced deductions apply only to specific charitable uses. Accrual‑basis corporations may elect to deduct authorized contributions paid shortly after year‑end.
These rules come directly from IRC §170, IRS Publication 542, and Form 1120 instructions.