Corporations

• Corporations are creatures of state law, which means each of the 50 states has different legal rules for corporations. Generally, each state allows the creation of either for-profit or nonprofit corporations. Certain types of nonprofit corporations may qualify as tax-exempt charitable corporations under IRS and federal tax rules.
  
  

Federal Income Tax Deduction

• Gifts of cash or some other kind of valuable property to a tax-exempt charitable corporation can produce a favorable income tax deduction for the gift donor. The donor can claim an itemized deduction equal to the fair market value of the donation. However, gifts or donations to a corporation that is not an IRS-approved charitable organization does not result in a tax deduction.
  
  

Federal Gift Tax

• Large gifts can actually result in the donor needing to pay federal taxes to the IRS. The U.S. Congress has enacted a federal gift tax that generally applies to aggregate lifetime gifts of more than $1 million from one donor to one recipient. So, if you give a corporation more than $1 million during your lifetime, then you will have to file a federal gift tax return, IRS Form 709, and you will have to pay a gift tax on the amount of gift beyond $1 million.
  
  

State Income Taxes

• Several states, such as Utah and California, have enacted state income taxes, while several other states, such as Texas, do not collect a state income tax. Each state legislature is free to regulate its state income tax code however the legislature desires, which means the rules change depending on which state income tax you are paying. Some states may provide a tax deduction or credit for gifts to corporations. In Utah, for example, a gift that qualifies the donor to claim a charitable donation deduction on his federal income taxes will also produce a state income tax deduction.