Are charitable donations made by your law firm direct business tax deductions?

Most likely, no.  The exact answer depends on the type of tax return filed for the law firm.

Firms that file as C Corps (Form 1120)

Firms that file as C Corps are able to directly deduct donations made to charity.  However, charitable donation deductions are limited to a maximum of 10% of net income.  Since most small C Corps are run to report nearly $0 taxable income each year, they are unable to deduct charitable donations.  Disallowed charitable donation amounts are lost and cannot be carried forward or transferred to shareholders.

Firms that file as S Corps (1120S), Partnerships (1065), and Sole Proprietors (Schedule C)

A little better news, but still not the answer most people expect.  For these firms, charitable donations are transferred from the firm and reported as itemized deductions for the owners.  The donation can be reported on the law firms financial statements, but the donation amount is removed from deductible expenses when the income...

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