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The team from Charity Navigator, the nation's largest independent charity evaluator and leading donor advocate, shares their thoughts on emerging nonprofit-sector issues and offers tips to better inform your intelligent giving decisions.

Wednesday, August 29, 2018

Is My Donation Tax Deductible?


We give to organizations working on the causes we care about because we want to make the world a better place. But, we don’t need to kid ourselves, a tax-deduction is always nice too. 

When it comes to your charitable giving, you’ve probably come across terms like 501(c)(3), 501(c)(4), and PAC. They sound so serious and technical, but what do they mean? We’re breaking down the differences here and what they mean for the tax-deductibility of your donations.



501(c)(3)

Donations made to organizations with this status are tax-exempt.

The IRS awards this designation to organizations that are “organized and operated exclusively for exempt purposes… and none of its earnings may inure to any private shareholder or individual.” This is why these organizations are commonly referred to as “nonprofits.” They may pay their employees, but shareholders or individuals cannot collect dividends or benefit from their investments or activities.

The “exempt activities” alluded to in that definition include charitable, religious, educational, scientific or literary purposes; testing for public safety; fostering national or international amateur sports competition; and preventing cruelty to animals or children. Organizations with this designation are limited in their ability to lobby or influence policy and legislation.

To be considered for a Charity Navigator evaluation, organizations must have received a 501(c)(3) determination from the IRS. This means that donations made to rated organizations will always be tax-exempt.

501(c)(4)

Donations made to organizations with this status may be tax-exempt.

The IRS awards this designation to two types of organizations: social welfare groups and local employee associations. Like (c)(3)’s these groups must not benefit any private shareholders or individuals. The difference, however, is that these groups are given more freedom to lobby and influence policy and legislation.

Work with these organizations and your tax preparer to understand which portion, if any, of your donation is tax-deductible.

PACs (or 527s)

Donations made to organizations with this status are not tax-exempt.

Organizations designated as 527s, also known as political action committees or political organizations, by the IRS are groups organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both for an exempt function.

In this context, “exempt functions,” generally speaking, are any that influence or attemp to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice-Presidential electors. 

Again, always work with the organization you’re supporting and your tax preparer to understand what qualifies as a tax-deductible gift and what does not. The IRS also provides more information about what qualifies as a tax-deductible donation on their website.

Written by Ashley Post, Communications Manager at Charity Navigator.

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