How corporate giving works: deductions, company foundations, product donations and sponsorships

Companies give to charity in four main ways: cash gifts made directly by the company, grants from a company foundation, donations of products and other property, and sponsorships of a charity’s events or programs. Each channel follows its own tax rules. The biggest recent change is to the corporate deduction itself: for tax years beginning after 2025, gifts count only above a floor of 1% of a company’s taxable income.

The deduction: a floor and a ceiling

Under section 170(b)(2) of the tax code, as rewritten by the July 2025 tax law, Public Law 119-21, a corporation’s charitable contributions are deductible only to the extent that their total for the year exceeds 1% of taxable income and does not exceed 10% of taxable income. The rule applies to tax years beginning after December 31, 2025. The amended text names two narrow exceptions: qualified conservation contributions by certain corporate farmers and ranchers and by certain Native Corporations.

The carryforward rules decide what happens to the rest. Gifts above the 10% ceiling can be carried forward for up to five years, used first-in, first-out. Gifts disallowed by the 1% floor can be carried forward only from a year in which the company also went over the 10% ceiling. A company that gives less than 1% of taxable income gets no deduction for the year and has nothing to carry forward.

The floor is a real constraint for many large companies. CECP’s Giving in Numbers: 2026 Edition found median estimated deductible giving of 0.39% of pre-tax profit among the companies it surveys, and estimated that roughly 4 in 5 would get no deduction at 2025 levels. Our news report on the survey has the details.

Company foundations

Many companies give through a foundation they fund. A company foundation funded by its parent company typically fits the IRS description of a private foundation: in the agency’s words, such foundations “typically have a single major source of funding (usually gifts from one family or corporation)” and mostly make grants. Private foundation status brings its own rules: an annual payout of about 5% of investment assets, a 1.39% excise tax on net investment income, an annual Form 990-PF and restrictions on self-dealing between the foundation and its substantial contributors and other disqualified persons. Those restrictions matter most when the main contributor is the company itself.

CECP found that 84% of the companies in its survey maintain a foundation and that foundations administer 56% of corporate cash giving. Our explainer on how private foundations work covers those rules in full.

Donating products

When a company donates inventory, its deduction is normally reduced by the gain that would not have been long-term capital gain had it sold the goods at fair market value, under section 170(e). In practice that usually limits the deduction to what the goods cost the company.

A special rule in section 170(e)(3) allows more for qualifying gifts. It applies to C corporations, not S corporations, that give inventory to a 501(c)(3) charity, other than a private non-operating foundation, which uses it for its exempt purpose solely to care for the ill, the needy or infants. The charity may not sell the property for money, other property or services, and must give the company a written statement saying so. Goods regulated under the Federal Food, Drug, and Cosmetic Act must meet its requirements on the date of transfer and for the 180 days before.

For those gifts, the deduction can reach the goods’ cost plus half of their markup, but never more than twice their cost. Separate rules apply to donated food.

Sponsorships and advertising

Corporate sponsorship raises a different question: whether the charity owes tax on the payment as unrelated business income. Under section 513(i), a “qualified sponsorship payment” is not unrelated business income. A payment qualifies when the company expects no substantial return benefit other than the use or acknowledgment of its name, logo or product lines in connection with the charity’s activities.

Acknowledgment does not include advertising. Messages with qualitative or comparative language, price information or other indications of savings or value, endorsements and inducements to buy count as advertising. Payments that depend on attendance, broadcast ratings or other measures of public exposure do not qualify, and the safe harbor does not cover acknowledgments in a charity’s regularly scheduled periodicals or payments tied to qualified conventions and trade shows.

Employee giving

Employee programs are widespread among large companies. In CECP’s survey, 94% of companies offer matching gifts and 60% now offer employee hardship funds, while average volunteer participation holds at 25%.