ACCP Staff
As you are likely aware, the Tax Relief for American Families and Workers Act of 2025, was signed into law on July 4th. Among its provisions is a new 1% taxable income floor for corporate charitable deductions. This change could have significant implications for how your company accounts for charitable giving.
What’s Changing?
New Deduction Threshold:
Under the new rule, corporations may only deduct charitable contributions that exceed 1% of taxable income. The total deductible amount remains capped at 10% of taxable income.
- Example: A company with $100 million in taxable income may only deduct charitable contributions above $1 million. Gifts below that threshold are not deductible in the current year (though they may be carried forward for up to five years).
Charitable Deduction vs. Business Expense
Given the new law, many companies may want to reassess whether to treat certain giving as a charitable deduction or a business expense. Here’s a breakdown of the two approaches:
Charitable Contributions (Section 170)
Pros:
- Clearly tax-deductible (if over 1% of taxable income)
- Recognized as philanthropic in public reports
- Aligns well with CSR, ESG, and mission-driven goals
Cons:
- Clearly tax-deductible (if over 1% of taxable income)
- Recognized as philanthropic in public reports
- Aligns well with CSR, ESG, and mission-driven goals
Business Expenses (Section 162)
Pros:
- Fully deductible, no minimum profit floor
- More flexible: includes sponsorships, cause marketing, employee engagement
- Can directly support business goals (brand visibility, employee retention, community relations)
Cons:
- Must demonstrate that the expense is “ordinary and necessary” for business
- Greater scrutiny by IRS; clear documentation required
- May not be perceived as purely philanthropic by stakeholders
What You Can Do Now
- Review your current giving strategies in light of this new threshold
- Collaborate with finance and tax teams to ensure proper classification of donations
- Reclassify where appropriate: Consider allocating certain giving—especially brand- or employee-driven efforts—as business expenses
- Stay informed: As the business and philanthropic community navigate the new realities of this legislation we anticipate more to be written on this topic.
ACCP will share additional information with members as it becomes available. We encourage members to learn from their peers within the ACCP community as we know our member companies use a range of approaches when it comes to how they report their philanthropic activity for tax purposes.
