We have all seen various businesses advertise that they will donate a percentage of sales to a particular cause, typically to a charity. Many assume that such donations are deducted as charitable contributions. For a sole proprietorship or flow-through entity, charitable contributions do not reduce income subject to employment taxes, and for a “C” corporation the deduction is limited to 10% of net profit. But are these in fact charitable contributions?
A Chief Council Advice (CCA) memorandum addressed this very issue. The conclusion was that such payments are not charitable contributions but rather ordinary and necessary business …read more
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