Tax Deductions and Considerations to Maximize Charitable Giving

Not all donations are eligible tax deductions. In order to be eligible for a charitable contribution tax deduction, the recipient charity must be duly qualified by the Internal Revenue Service (IRS). This means that gifts to needy relatives, friends, neighbors, and any other person or group who lacks tax-exempt status as determined by the U.S. Treasury, are not tax-deductible as a charitable contribution.

Qualified Charitable Organizations

Qualified charitable organizations include those operated exclusively for religious, charitable, scientific, literary or educational purposes, or the prevention of cruelty to animals or children, or the development of amateur sports.

Nonprofit veterans’ organizations, cemetery and burial companies, fraternal lodge groups, and certain legal corporations can also qualify. Even federal, state and local governments can be considered qualified charitable organizations if the money donated to them is earmarked for charitable causes.

To receive the status from the IRS, qualified charitable organizations must meet requirements under section 501(c)(3) of the Internal Revenue Code (IRC). None of the earnings of the organization can go toward any private shareholder or individuals, and it may not seek to influence legislation as a substantial part of its actions.

Charitable Organization versus Tax-Exempt Organization

It is important to note that qualified charitable organizations differ from strictly tax-exempt organizations, which do not have to be for a charitable purpose yet are not required to pay taxes. All duly qualified charitable organizations are tax-exempt, but not all tax-exempt organizations are duly qualified charitable organizations.

For example, a trade association or business league are both tax-exempt organizations, but contributions to those organizations are not eligible for a charitable contribution.

Case Study

David makes the following donations in 2019:

• $2,500 to a friend’s GoFundMe Personal Campaign
• $5,000 to the National Rifle Association (NRA)
• $7,500 to a local church
• $1,000 to a local animal shelter

Assuming David itemizes his deductions on “Schedule A”, he can deduct the donations to the local church and animal shelter as charitable contributions, but not $2,500 to the GoFundMe Personal Campaign and the $5,000 to the NRA.

Although donations that are made to a GoFundMe Certified Charity campaign are guaranteed by the company to be tax-deductible, a GoFundMe Personal Campaign is generally considered to be a personal gift that does not qualify as tax-deductible charitable contribution.

The donation made to the NRA is not tax-deductible as a charitable contribution because the NRA is a civic association organized under IRC 501(c)(4). Like section 501(c)(3) organizations (duly qualified charities), section 501(c)(4) organizations are tax-exempt for federal income tax purpose, however, Section 501(c)(4) organizations may engage in lobbying so long as it pertains to the organization’s mission. This means that the donation is not tax-deductible to the donor.

Tax-Exempt Organizations

Another common type of organizations that may be tax-exempt, but are not necessarily qualified charitable organizations are business leagues or Chambers of Commerce, which are organized under section 501(c)(6).

The IRS website offers a Tax-Exempt Organization Search that allows you to confirm the tax-exempt status as well as review the deductibility code and annual 990 tax filings. This can help confirm that donation you are considering making to the charity will be eligible for a charitable contribution tax deduction.