Business Tax Rules to Expense Charitable Contributions: Structuring Charitable Contributions to Reduce the Amount Subject to Income Floors in the OBBBA and Deduction Limits

The rules for charitable tax deductions changed significantly under the One Big Beautiful Bill Act (OBBBA), which takes effect January 1, 2026. Traditionally, individuals could deduct charitable donations only if they itemized deductions, while C corporations could deduct contributions up to 10% of taxable income. After the 2017 Tax Cuts and Jobs Act increased the standard deduction, fewer households itemized, reducing the value of charitable deductions for many taxpayers. The OBBBA adds new limits: corporations may deduct only donations exceeding 1% of taxable income, and individuals who itemize may deduct only amounts exceeding 0.5% of adjusted gross income (AGI). The law also caps the value of itemized deductions at 35%, even for taxpayers in the 37% tax bracket.

The OBBBA permanently keeps the 60% AGI limit for cash donations to public charities and expands the above-the-line deduction for non-itemizers to $2,000 for married couples and $1,000 for other filers. Different AGI limits still apply depending on the type of property donated and the organization receiving it. Cash donations to public charities generally receive the most favorable treatment, while gifts of appreciated property or donations to private foundations face stricter limitations. The law also changes the order in which different categories of charitable contributions are calculated, making the rules more complicated for taxpayers with multiple types of donations.

For C corporations, the new 1% deduction floor may greatly reduce the practical benefit of charitable deductions because many corporations already donate around 1% of taxable income. For example, a corporation with $1 million in taxable income and $150,000 in donations would lose the first $10,000 of deductions under the new floor before applying the existing 10% limit. Some unused deductions may carry forward to future years, but amounts lost because of the floor may disappear permanently. Because of these restrictions, businesses may benefit more by treating certain charitable payments as ordinary business expenses instead of charitable contributions.

The article explains that businesses may deduct charitable payments as business expenses under Internal Revenue Code Section 162 if the donation directly relates to business operations and is expected to provide financial benefits such as advertising, goodwill, or customer relationships. Examples include sponsorships, event advertising, and community programs that promote the company’s name. If structured properly, these payments avoid the charitable deduction floors and limits entirely. Businesses are encouraged to keep detailed records showing how donations support marketing or revenue goals in case of an audit.

The article also highlights challenges for partnerships and S corporations because charitable donations pass through to individual owners, who may receive different tax benefits depending on their income and filing status. Some owners may lose most of the deduction if they use the standard deduction, while higher-income owners may face the new AGI floor and reduced deduction value. Overall, the article argues that businesses and individuals should carefully review their charitable giving strategies with tax professionals to determine whether contributions should be treated as charitable deductions or business expenses in order to maximize tax benefits under the new law.

For more information see Abbie M.B. Everist, Jake Cook, and Eric Mauner “Business Tax Rules to Expense Charitable Contributions: Structuring Charitable Contributions to Reduce the Amount Subject to Income Floors in the OBBBA and Deduction Limits,” ABA Probate and Property Journal, May 1, 2026.