While charitable giving may be a year-round activity, this time of the year is especially good for philanthropy. Today is Giving Tuesday, which is one day each year that is dedicated to encouraging generosity worldwide. There are so many worthwhile causes and needy individuals. And there are tax breaks for being generous.
Some of the tax rules are changing in 2026, which may impact decisions on the timing of your giving. Because owners of pass-through entities report their share of business donations on their personal returns, the tax rules for individuals may affect decisions on business giving.
What you can donate
The range of things your business can donate are limitless. They include not only money, but also inventory, used equipment, and even services. The tax rules, explained later, vary with the type of donation.
Cause marketing
You can incorporate charitable giving into your business model. For example, you can give a set percentage of sales to charity and market your company with this in mind. Causely, a Beonic Business helps businesses generate social media reviews and referrals by giving back. Or, like Bombas, that donates one pair of socks to homeless shelters for each pair purchased, you can tie your activity to a specific cause.
Inventory
If you have items sitting on the shelf or taking up warehouse space, you can donate them to charity.
Unused equipment and furniture
If you no longer need or use machines, desks, file cabinets, and other items that are just taking up space, consider donating them to a charity that can put them to good use.
What you can deduct
Some of the federal income tax rules for charitable donations in 2025 are different from those in 2026.
For 2025: C corporations can deduct donations up to 10% of their taxable income. This limitation isn’t significant for many small corporations, but it can be a big deal for those engaged in cause marketing. Owners of pass-throughs can deduct their share of cash contributions up to 60% of their adjusted gross income, but only if they itemize deductions.
Generally, donations of inventory are limited to the smaller of the fair market value of the items on the day of the donation or their basis (usually cost). Remove the amount of the charitable contribution deduction from opening inventory; it isn’t part of the cost of goods sold. C corporations that donate inventory to an organization for the care of the ill, needy, or infants can take an enhanced deduction of the cost of the inventory plus one-half the gain if the property were sold for its fair market value. Any type of business that donates food inventory is subject to special deduction rules.
Donations of machinery, furniture, and other similar items probably won’t generate a tax break. Why? Donations of ordinary income property (property that would result in ordinary income to the business if it’s sold) is limited to its tax basis. Due to first-year expensing and bonus depreciation, this basis may be zero, so no deduction results. But the charities will benefit from these items nonetheless.
For 2026: C corporations can only deduct donations only to the extent they exceed 1% of taxable income, and then only up to 10% of taxable income. Owners of pass-through entities have a 0.5% floor for charitable contributions if they itemize. And if they’re in the top tax bracket of 37%, they only benefit from the deduction to the extent of 35%. The 60%-of-AGI limit continues to apply. Those who don’t itemize can deduct up to $1,000 ($2,000 for joint filers) of cash contributions.
How you help employees
If the holiday season isn’t your busy time of the year, you can enable employees to help in the community with food and toy drives, youth mentoring, or other charitable activities by giving employees volunteer time off (VTO). This can be a win-win-win for all concerned:
- Employees. Many want to show their passion for community projects and support a meaningful cause.
- Employers. They gain a staff that is more engaged and a better company culture (i.e., increased employee retention), an enhanced company reputation.
- Charities. They are the direct recipient of charitable work. Employees are an added resource.
Caution: Be sure to know whether employer-sponsored employees’ volunteer work is compensable. If it’s during business hours, then they are paid their regular wages or salaries. If it’s after hours, no pay is required if the volunteer work is really voluntary (i.e., participation isn’t required and the activity isn’t controlled by the employer).
Substantiate your donations
The tax law requires special substantiation for charitable contributions. Without it, otherwise legitimate deductions are lost. Donations of any kind of $250 or more must have a written acknowledgment from the charity. Keep checks or other proof of smaller donations. Substantiation rules apply to all types of business entities. Find more in IRS Publication 526.
Final thought
“Where charity keeps pace with gain, industry is blessed.” —William Penn
Giving is always a win-win. Tax write-offs are only a part of the decision regarding charitable giving. Look at your budget and other factors discussed in this article to decide how you can make the most impact with your charitable giving this year…and next year.
Additional reading concerning donations and your business can be found in this list of blogs.
