March 11, 2020 0 comment

Don’t Let Your Generosity Be a Tax Monstrosity

I wanted to give you a really quick tax tip. That is, avoid making charitable contributions through your pass through entities. Those would be your S-corporations and your partnerships. When you do that there’s a question about how those charitable contributions affect your qualified business income deduction. Many software providers, many tax professionals currently are reducing your qualified business income by charitable donations that you make within your business and when they do that you get less of a qualified business income deduction. Some preparers, some professionals may not even realize what they’re doing because they might be letting their software do it for them and of course some might know what they’re doing and kind of just chosen to interpret the recently released final regulations in that way.

Personally I don’t think that the final regulations are specific enough about charitable contributions to really justify reducing your qualified business income by your charitable contributions. Until we receive more specific guides from the IRS or until the courts weigh in, I’m advising my clients to not reduce their qualified business income by charitable contributions. But here’s the thing, the best way to avoid having any question here, is don’t make the charitable contribution through your business. Make it personally then it’s never a question. It never can be challenged. You’re never going to be audited. No problems at all. So make your charitable contributions personally. Don’t make them through your pass through entity. I hope that’s helpful.