Yes, the calendar pages continue to fall off and the end of the year is fast approaching.
Soon, the Thanksgiving and Christmas/Hanukkah too holidays will be upon us.
With that comes the articles about tax and money-saving tips.
And the letters, phone calls, emails, etc looking for your charitable contributions.
In some instances, you may be able to claim the charitable contributions you make on your tax return.
May being the operative word, but more on that later.
Even if you can’t get the tax break, it is still a nice thing to do for others who may be less fortunate.
But, things are not always as they appear.
You’ll no doubt see something on cable television or a charity’s website to the effect of “your contribution is tax-deductible”.
(Marketing agencies are really good about reeling people in!)
Please, take that with a grain of salt as that is not a guarantee by any means.
Here are 8 situations that will prevent you from being able to deduct–partially or in full–your charitable contributions.
1. Charitable Contributions Won’t Help If You Don’t Itemize
**This section doesn’t take into consideration the 2020/21 temporary change allowing for up to $300/$600 in charitable contributions**
You must itemize your deductions in order to take a deduction for any charitable contributions.
Go ahead and look at the first two pages of Form 1040.
You will see no reference to charitable contributions anywhere, except for Schedule A.
That means if you take the standard deduction, you get no benefit.
It seems like such a simple thing, but the recipient organizations probably think it will scare people out of donating if they advertise something like:
Your gift is tax deductible…but only if you itemize!
And, of course, they also don’t tell you that you will never be able to deduct the full original cost of anything you give (in terms of giving goods), but that’s how it works.
On top of that, the most you will be able to deduct on your tax return is 50% of your adjusted gross income depending on the type of donation you make.
So, if you gave money from savings or from a stash of old belongings you wanted to clear out, you may not be able to take all of it this year if your AGI wasn’t high enough.
There is a bit of good news, though!
If your contributions were limited due to your AGI, then you can carry the remainder forward for up to 5 years.
Sadly, this only pertains to the excess contribution limitation, it doesn’t count for previous years’ charitable contributions when you took the standard deduction and can now qualify to itemize. ☹️
2. Not All “Charities” Are Exempt Organizations
Yet another problem when it comes to deducting charitable contributions is not everyone that comes knocking at your door represents a viable charity.
Unless the organization is an IRS section 501(c)(3) exempt organization, charitable contributions are not legally deductible.
It may not make sense to some people as to why there is a distinction here, but the answer is quite simple: qualified charitable organizations do not pay taxes, and therefore are held to strict IRS guidelines relating to their reporting of information and how the monies they collect are used.
Then you need to be aware of yet another distinction.
There is a difference between “tax-exempt” and “exempt organization”
Public schools, for example, are government entities and therefore “tax-exempt”, meaning they don’t pay taxes.
BUT just because it’s tax-exempt doesn’t automatically make it an “exempt organization” for IRS and tax deduction purposes.
This means that unless your kid’s school, its PTA, sports teams, etc are individually or collectively recognized as 501(c)(3) organizations, you cannot deduct any money given to them regardless of the intended purpose.
The same goes for little leagues of all kinds as well as many other civic groups.
Just being a publicly run and funded organization doesn’t automatically grant them exempt organization status.
Any group or organization must apply before it can present itself as such and declare its charitable contributions to be “tax-deductible”.
So, just because a little kid wearing a baseball uniform knocks on the door, or someone sets up a table in the mall handing out religious blessings in exchange for cash, they are not always legitimate, recognized charitable organizations for the purpose of claiming a tax deduction.
The IRS has a database you can search to check up on any organization you may be thinking about donating to.
The Federal Trade Commission also has charitable giving resources to help educate and protect you.
3. Receiving Value Negates Deductibility
Another big issue arises when it comes to charity events.
You have undoubtedly heard about dinners where a portion of the per-plate cost goes to a charity, yes?
Or a special event at a hot spot or cultural location where a charity will be helped?
Or even a raffle/auction/bingo to help raise funds.
Well, I’m sorry to inform you that many of these instances are not considered charitable contributions (or at least not entirely).
See, the way it goes is that you have to give up something of value in order for it to be considered charitable contributions.
When you get something of value, it’s essentially a purchase transaction, so you lose any or all of the possible deductions.
Here are examples of the three most common scenarios:
- You go to a charity dinner event which costs $500 per plate. Since you are actually receiving a meal in exchange, the only thing considered to be a charitable contribution is the amount exceeding the value of the meal.
- You go to an event with an auction in which all proceeds go to charity. You bid on and win a cruise for 2. The cruise has a retail value of $1,500 but your winning bid was only $1,000. None of you the bid counts as charitable contributions since you received something that had a higher value than your winning bid.
- You open the mail and see a letter from your favorite charity, writing a check for $50. A few weeks later you receive a thank you letter in the mail. Your $50 counts as charitable contributions tax-wise because you did not receive anything of value in return for your money.
Most organizations will include these caveats in their marketing materials, or in the receipt you receive.
The problem is that many people do not read the fine print on anything, so when they get to their tax preparer they are shocked when told about the disqualified portions.
Speaking of those “little things that surely don’t count in this discussion” such as raffles and bingo–IRS Publication 526 has something to say about those specifically (literally copied and pasted from the actual text on the website!):
You can’t deduct as a charitable contribution amounts you pay to buy raffle or lottery tickets or to play bingo or other games of chance
4. Pet Adoption Fees Aren’t Charitable Contributions
I used to have a client that was very generous, giving lots of money to numerous charitable organizations.
Once he asked about deducting pet adoption fees from the Broward County Humane Society.
He said the person who processed the adoption told him that the fee was a tax deduction because it was a donation.
Boy was that the furthest thing from the truth…
The way it works at this place (and many others like it) is you must pay a fee to adopt a pet.
The cost depends on the type and age of the animal.
That’s all well and good, except for one little fact:
You cannot adopt if you do not pay the fee.
What this means, is that the transaction is in no way a donation if it is a requirement to complete the process.
You see, it can be a fee or a donation, but not both.
If the payment is a prerequisite, then it is a fee and therefore not a tax deduction.
On the other hand, if the transaction is free but it is suggested that you make a payment of some sort to help them after the fact, then it is a donation, and thereby can be deducted (again, only if you itemize)
Remember, if you do not itemize on your 1040 return, then no charitable contributions are deductible.
Side note: This is only the case with ordinary house pet adoptions.
If you are a special needs person or have a dependent who is one, then the costs of those pets, the supplies, and care are deductible as medical expenses (again, if you itemize AND the expenses exceed the 7.5% floor for medical expenses, you can deduct the excess).
Also, you can deduct the cost to purchase and care for working animals such as guard dogs for your business.
You need to be careful if you do decide to donate to an animal shelter.
As I mentioned in the first sub-heading, not all organizations are “exempt” when it comes to IRS standards and therefore the money you give to them isn’t tax-deductible.
The same rules apply to pet insurance as well, but that’s a whole other topic!
5. Giving To Charity Needs To be PErsonal
There are a lot of people who are misinformed about making charitable contributions through their businesses.
Any small business that’s structured as a sole proprietorship or single-member limited liability company (SMLLC) is taxed on the owner’s/member’s income tax return
S Corporations pass the tax liability and any claim for charitable contributions through to the shareholders.
What that means is that the businesses themselves don’t take deductions for charitable contributions because they don’t pay taxes.
The way it actually works is that you ignore charitable contributions made through your business.
Well, you do record it for book purposes, you just don’t use it on your Schedule C or the 1120-S.
Again (and I’m sure people are tired of seeing this phrase), you have to itemize in order to take advantage of it on your taxes.
Otherwise, it’s just a line item on the profit and loss report for the business.
If you happen to run a C-Corp, then your business may be allowed to deduct charitable contributions (subject to limitations) since the business pays its own taxes!
6. Donations To Individuals Don’t Count
If you are the type of person who hands money to random needy people on the street, I applaud you.
I truly believe that it’s very kind and selfless of you!
However, I also have to be the bearer of bad news:
You can’t count any of that money toward your charitable contributions.
As I mentioned earlier, in order to qualify for the deduction, money has to go to a recognized exempt organization.
Unfortunately, even if they wanted to, individuals cannot gain that status.
In this case, the money you give is considered a gift, which you cannot deduct on your taxes even if you do itemize.
The same goes for crowdfunding campaigns to help people with medical bills…the money is going to an individual who is not considered to be a charitable organization.
Even when it comes to disaster relief, according to IRS Publication 526:
…you cannot deduct contributions earmarked for relief of a particular individual or family
That being said, if you know of an exempt organization that takes nominations for worthy recipients of assistance, then you are more than welcome to try and get individual assistance that way.
Any money you give to that group would qualify as deductible!
Even if you don’t get the tax break, you do get karma points and your soul can feel good 😀
7. Only The Person Giving Gets A Deduction
This one may piss some people off.
Again, I’m just the messenger so don’t yell at me…please 🙂
If someone is going around collecting donations which they will then turn over to some charity all of the people who contributed to the fund are left out in the cold.
It also means that if someone makes a donation in your name, you cannot claim the deduction.
The only person who can claim a tax deduction is the person who actually makes the donation, meaning the one who turns the money over to the charity.
8. Twitch & GoFundMe Aren’t Charities
Obviously, these two platforms are relatively new, coming into existence in the 2010s.
That means a lot of people may not even know that the heck I’m even talking about lol.
For those who do, and are looking for guidance, I will keep this short and to the point.
Twitch “donations” are not donations.
The streamers get those “donations” and they are not exempt organizations so you cannot write them off.
It doesn’t matter what terminology Twitch uses, the fact is that they are not tax-deductible, period.
The only time you may be able to deduct anything as a tax deduction is if the streamer is doing a charity stream and you have to use a separate off-site system to give.
In that case, it will (or at least should) be made clear that that particular system is set up for the charity to receive the money directly.
As for GoFundMe, again, it’s very simple.
No matter the good intentions behind the campaign, unless an actual charity is collecting the money there is no deducting what you give.
No, if it’s for someone’s education you cannot claim it on your own return as “education expenses”.
No, if it’s for someone’s medical bills you cannot claim it on your own return as “medical expenses”.
Put simply, as was stated above, the money given to an individual cannot be treated as charitable contributions.
Bonus: Political Contributions
Political contributions are not “charitable contributions”.
Even though you are “donating” these political contributions aren’t going to an IRS-approved exempt organization or charity.
This disqualified group includes:
- Political candidates or parties
- Campaign committees
- Political Action Committees (PACs)
- Fundraisers or events that benefit political candidates or parties
Pretty much anything associated with politics is considered a political contribution and not “charitable”.
Check out this part of IRS Publication 526 on line 8!
Ultimately, the responsibility falls on you, the taxpayer, to make sure that you know what you are doing before making any kind of donation.
Call the organization, call your tax preparer, call the IRS taxpayer advocate if you have to.
Do anything to make sure that you have all the information necessary to make the right choice.
It’s not such a bad idea to seek help on something you’re not 100% sure about.
And, it’s better to file correctly the first time than risk a fraudulent deduction upon audit down the line.
What’s been your experience making charitable contributions? Has anyone ever told you that a donation wouldn’t be deductible? Have you ever knowingly “cheated” on these rules? Were you even aware that these rules existed before reading this?