Hi,
If your company runs a giving or sponsorship program, a rule that took effect this year quietly kills part of the deduction you always counted on. And for most corporate donors, the lost amount doesn’t carry forward. It’s gone for good.
Here’s the trap: Starting in 2026, a corporation can only deduct charitable gifts to the extent they exceed 1% of taxable income. The old 10% ceiling still caps the top, but now there’s a floor cutting into the bottom.
- The first 1% is dead weight. On $1,000,000 of taxable income, the first $10,000 of giving is no longer deductible at all.
- For most companies, it’s permanently lost. Unless your total giving exceeds the 10% ceiling, the amount knocked out by the 1% floor cannot be carried forward. Most corporate giving lives well under that ceiling, so that first slice just disappears.
- It compounds every year. A company giving $30,000 a year across community partners loses the deduction on the first $10,000 annually, year after year, with nothing to show for it.
Now the part most preparers won’t tell you: A lot of what companies call “charitable giving” isn’t a donation in the tax sense at all. It’s marketing. If your logo goes on the banner, your name is on the jersey, you get booth space, event visibility, or brand alignment out of it, that payment has a real business return. And payments with a genuine business purpose belong under Section 162 as ordinary and necessary business expenses, which are 100% deductible and never touched by the 1% charitable floor.
Stop treating sponsorships and promotional spend as charity and start classifying them as what they actually are, business expenses.
- A youth sports sponsorship with your logo on uniforms is advertising.
- A charity gala table with your brand on the program is a promotion.
- A community event where you’re a named sponsor is goodwill marketing.
The catch is substance. You can’t just relabel a pure gift and hope it holds. The business purpose has to be real and it has to be documented: a sponsorship agreement that spells out what you receive, the advertising value, the deliverables. Done right – you are in the clear. Done loosely, it won’t hold up in an audit.
It has to be built into how the payment is structured now, during the year, not reconstructed after the books close.
How We Handle It
- Program review. We go through every payment in your giving and sponsorship budget and sort what’s a true donation from what’s really a business expense.
- Documentation protocol. We set up the real-time records that make each expense hold up under exam.
- Monthly bookkeeping
- Payroll (full-service, multi-state, contractor 1099s)
- Quarterly tax estimates so you know exactly what you owe before April – no surprises
- Year-round planning and CFO-level review of vendor spend, subscription creep, and margin leaks
- Sales Tax
- Return filed by the same team. The team that works on your books & proactive strategy also does your return, so no need to coordinate between two professionals.
If your company gives to charity or sponsors events, reply to this email by Friday and we’ll set up a free 15-minute call with our COO and Tax Strategist, Liliya Maksimov, to review your giving program and show you how much of the deduction you can protect this year.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com