A Guide to Claiming Charitable Contributions

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. 

Tax Deductions & Charitable Donations

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.

Charitable Donations & Taxes: FAQs

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.

Are Gifts to Non-Qualified Charity Tax Deductible?

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 Charity Raffle Tickets Tax Deductible?

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. 

Are Donations to Common Cause Tax Deductible?

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.

Are Donations to a 501(c)(4) Tax Deductible?

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.

Are Fundraisers Tax Deductible?

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.  

Tips for Ensuring Your Charity Donation is Tax Deductible

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.

Partner with Porte Brown 

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.

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