Donating to a good cause isn’t purely an act of philanthropy, there are also tremendous tax benefits to spreading your wealth to a charitable cause. When filing your taxes, you must be aware of the tax rules relating to charitable donations.
In this post, we’ll discuss the basics of charitable donations and tax deductions, answer essential questions regarding how tax laws apply to charitable events, and more.
Giving money to charity allows you to make a tax deduction that could reduce the amount you owe on your taxes. There are no rules on who can donate — anyone can claim this deduction to reduce their tax burden.
The IRS allows individuals to deduct a maximum of 50% of their adjusted gross income per tax year. However, in some rare scenarios, the limit could be as low as 20% or 30%.
Note that many nonprofits are covered by 501(c)(3) of the Internal Revenue Code. The charity you donate to must be certified under 501(c)(3) to make you eligible for a tax deduction. The certification confirms that the charitable cause is exempt from Federal income taxes. Note that not all nonprofits are tax-exempt. The IRS website enables you to double-check an organization’s status.
When filing your tax returns, you will need to itemize. If claiming the standard deduction, you cannot claim charitable contributions. On your tax return, you will be making your claim on Schedule A of IRS Form 1040.
There are many ways to contribute to a good cause, but how do you know if your contribution will be tax deductible? There are lots of nuances, including different rules for cash donations, charity events, and more, which ultimately results in a lot of questions. For example, are fundraisers tax deductible? What about other kinds of gifts? Are raffle tickets deductible?
Let’s look at some of the most common questions regarding charitable donations, so you can make the right decision for your taxes. However, the rules can be complex, so it’s always best to enlist the support of a professional tax accountant.
In short, no. The 501(c)(3) certification isn’t automatically applied to charities. The charity must apply for the status themselves. Unfortunately, if a new charity has yet to receive its certification, you will be unable to claim contributions on your tax return.
Are raffle tickets tax deductible? IRS laws generally say no. Many taxpayers are surprised to learn that these tickets are not tax deductible, even when purchased from a qualifying charity. The argument for changing the raffle tickets tax deductible status is that if you fail to win a prize, you’ve donated to the charity. Even though that’s true, the IRS views raffles as akin to gambling rather than a charitable donation — win or lose.
Donations to political causes are not tax deductible. However, this rule can lead to confusion regarding whether donations to the Common Cause Education Fund can be deducted from your tax returns. Common Cause is a 501(c)(3) certified organization. Despite its political links, this is a bipartisan charity, which has allowed it to qualify for tax-exempt status from the IRS. Any donations you make will be tax deductible. (Please see "Are Political Contributions Tax Deductible?" for more information, below.)
These social welfare organizations do hold tax-exempt status as charities. However, they are not required to seek approval from the IRS to confirm their tax-exempt status. Many of these organizations do so anyway to legitimize themselves. However, organizations covered under this part of the tax code will not yield you a tax deduction in any circumstances.
The rules over fundraisers are immensely complex, and it depends on whether you’re hosting or attending. So are fundraisers tax deductible if you’re the host? If you are hosting a charity event, tax deductions exist as long as you are not receiving anything in return. In other words, it must be presented as a gift.
Attending a fundraiser, such as a dinner or buying something at an auction, is not tax deductible because you are receiving something in return for your money. Attendees cannot claim this back on their expenses.
What if you’re providing the event space? Does a free rent to non-profit tax deduction exist? Generally, no. You cannot deduct the rent you would have charged to the nonprofit because you are giving them the space rent-free, so there is nothing to deduct.
Fundraising activities and tax deductions are incredibly complex, which is why hiring a professional for advice is critical.
Ensuring a charitable donation is tax deductible isn’t as easy as many people believe. It’s not as simple as giving money to any charitable cause and claiming it on your taxes.
Follow these tips to ensure your donation is tax-deductible and to make the most of your charitable activities.
In most cases, a simple cash donation to your favorite charity is easy enough to process. The complexity begins when you factor in fundraisers, volunteering activities, and non-cash contributions. The cost of getting it wrong could mean owing thousands of dollars more in taxes than you initially intended.
Charitable giving is an excellent strategy for donating to a cause you’re passionate about while paying less in taxes. However, the process isn’t as simple as it sounds. There are established processes for claiming charitable tax deductions on your tax returns.
Hiring a tax professional is invaluable for guaranteeing compliance, reducing your odds of an audit, and ensuring that you are claiming every tax deduction available to you.
To learn more about hiring a personal financial advisor, contact Porte Brown today.
Many political campaigns, especially those with minimal budgets, rely on donations and contributions from their constituents. This is a way for candidates to receive financial aid and gauge their level of public support.
For everyday citizens like us, donations are among the few ways we can help shape America’s political landscape. Some may find the need to not only exercise their civic duty to vote in area elections but to also financially-back candidates to extend their political participation as well.
However, when tax season sets in, many taxpayers wonder: are political contributions tax deductible?
In this article, we’ll explain the many tax implications of political donations, tax deductible tips you can use, and more.
In a nutshell, the quick answer to the question “Are political contributions deductible?” is no. Any money voluntarily given to candidates, campaign committees, lobbying groups, and other political organizations is non-deductible as per the IRS.
The IRS guidelines also go beyond just direct political contributions. Tax-deductible rules also state that expenses incurred while volunteering for a political campaign or organization cannot lower your tax liability. For example, suppose you volunteered for the campaign committee of your local mayoral candidate. In that case, the money you spent on food and transportation is not tax-deductible. You cannot declare that time as an hourly paid service for tax purposes, either.
Even the candidates themselves are not immune to this rule. That means they can’t deduct expenses incurred for their campaigns, even if those expenses were paid out of their own pockets.
However, there’s one way to make a tax-free political contribution, specifically to the presidential election campaign. 1040 forms will have a “Presidential Election Campaign” option you can tick. It authorizes the IRS to donate $1 of your income tax payment to the presidential campaign fund, which is then given to qualified presidential candidates. Because the $1 comes from the tax that you paid, it costs you nothing to donate. Nor does it affect your taxes or deductions in any way. Of course, the drawback is that you aren’t directly contributing to your chosen presidential candidate but to all qualified candidates.
Are campaign contributions tax-deductible? People usually confuse these contributions with charitable donations. Funds given to charity are tax-deductible, unlike political contributions. Deductible contributions only apply to charitable organizations, but political parties do not qualify for this designation. The IRS singles out political parties or any other politically motivated organization as exceptions to the rule. However, it can be difficult to determine which ones qualify for tax deductions. To help taxpayers out, the IRS created the Tax Exempt Organization Search portal. You can use the tool to search for the specific organization you want to donate to via their Employer Identification Number and see if they qualify for tax deductions.
For example, to the question, “Is ActBlue tax-deductible?” — the answer is a definite yes. This is because ActBlue serves as a charitable nonprofit organization that funnels funds to democratic campaigns as opposed to a direct donation to the candidates themselves.
Because of this IRS rule, it’s vital to keep track of multiple contributions so you know which ones are and aren’t tax-deductible. It makes your life easier when completing your annual tax returns, and it minimizes any filing errors.
In many ways, big businesses financially influence politics in their favor because they have more to gain. So, it’s no wonder they often make political donations. But just like the rule for individual contributions, they cannot use any of these expenditures as tax deductions.
In addition, businesses also spend large sums trying to influence legislation through other means aside from directly supporting candidates. These can include funding lobbyists, labor unions, and chambers of commerce. As expected, these expenses are non-deductible as well.
So, are campaign donations tax-deductible? No. However, you can still gain tax savings outside of political contributions, including in the following ways:
As experienced Chicago tax accountants and advisors, Porte Brown can help you navigate the U.S. tax system. We’ll help you make the most of your filings, so you can support causes that matter to you. Contact us today to learn more.
Get in touch today and find out how we can help you meet your objectives.
