BBB Advice: Understand Tax Code Rules Before Writing Off Donations

fundraiser logosAfter the recent tragedy in Ferguson, many people both locally and nationally have felt moved to aid those affected.  BBB understands that donors want to help, and we want to add that donors can do the most good when they remember to give with their heads and not just with their hearts.

Giving wisely can be complicated when you are evaluating the goals of many different charities.  The issue has been especially confusing recently because there have been conflicting reports about the charities trying to help the people of Ferguson, as well as conflicting reports about those charities’ abilities to take tax-deductible donations.

BBB advises that donors who want to ensure their donations are tax deductible get professional legal advice.  Even though some charities state directly on websites or promotional materials that contributions to them will be tax deductible, it is best to ask a tax professional if you need to be certain, especially if the deduction will hinge on a gray area in the tax code.

You may especially want legal advice if you intend to donate directly to one individual or family.  Contributions to individuals or families affected by a tragedy are often not tax-deductible, and are governed by complicated rules.  Direct donations not facilitated by a 501(c)(3) nonprofit, like giving to online fundraisers run by an individual, are almost never tax-deductible.  At the same time, donations made to an IRS-approved charity may or may not be deductible in those cases where a donation is designated to assist a specific individual or family.

The US Tax Code states that

You cannot deduct contributions to specific individuals, including the following.

  • Contributions to fraternal societies made for the purpose of paying medical or burial expenses of members.
  • Contributions to individuals who are needy or worthy. You cannot deduct these contributions even if you make them to a qualified organization for the benefit of a specific person. But you can deduct a contribution to a qualified organization that helps needy or worthy individuals if you do not indicate that your contribution is for a specific person.
    • Example. You can deduct contributions to a qualified organization for flood relief, hurricane relief, or other disaster relief. However, you cannot deduct contributions earmarked for relief of a particular individual or family.

Source: http://www.irs.gov/publications/p526/ar02.html#en_US_2013_publink1000229694

But as we all know, the tax code can be complicated by many factors.  If you are relying on receiving a tax deduction, ask someone who can be certain that your case falls within IRS guidelines.

Some other kinds of donations are more frequently okay to write off on your taxes.  Any donations given to an organization to provide aid to a larger population– for example, a food bank providing food for schoolkids in Ferguson, or a general fund for the police– can be tax-deductible.  But as with donations to individuals, it’s best to check.

As always, BBB recommends you check out any charity before donating.  Better Business Bureau’s Charity Information Service was set up to help donors find trustworthy charities. BBB asks charities for specific information on how they are funded, how their money is used, who runs the charity and what kind of oversight they have from board members who aren’t related to people who are running the charity.

BBB determines whether charities are in compliance with BBB’s 20 Standards of Charity Accountability, and charities that comply may become BBB Accredited Charities. The 200 local charities that meet these standards have shown that they are accountable to donors and the public and that their funds are used primarily for programs. BBB has a directory of Accredited Charities online.

Other helpful tips for making donations are posted on the BBB website (www.bbb.org). The IRS website (www.irs.gov) has information on the deductibility of donations on tax returns.

Consumers can learn how to protect themselves or find BBB Business Reviews and BBB Charity Reviews by calling (314) 645-3300 or by going online to www.bbb.org.

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