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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.

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Friday, June 28, 2019

501(c)-What?


You may or may not have heard of the term “501(c)(3),” but it is an important term when it comes to charitable giving.  According to the IRS tax code, an organization with 501(c)(3) status is tax-exempt, which means donations to the organization can be taken as a deduction when it comes time for you to complete your annual tax return.  Pretty straightforward, right? Wrong.

There are over 25 different codes under the 501 IRS tax classification umbrella. And, each one means something different for both the organization and the person that is supporting that entity.

Here’s what you need to know before you make your next donation:


Your local winter ski club most likely is a 501(c)(7) organization, while your local cemetery is almost certainly a 501(c)(13). A state-chartered credit union would typically be a 501(c)(14).

The only way to ensure that your donation to a charity is fully tax-deductible to the extent of the law is to give to an IRS-designated 501(c)(3) organization. These are the only types of organizations Charity Navigator currently evaluates with a star rating which makes for an easy rule of thumb: if a charity is rated you can be confident your gift is tax-deductible.

One of the major differences between (c)(3)s and the other IRS designations, is the public nature of (c)(3)s. Public charities are ones that have broad public support and promote activities that serve the common good. Some of the other 501(c) designations cover private membership organizations which excludes them from consideration as a (c)(3). Others organizations are more social or recreational in nature rather than charitable. These groups, like lodges and local sports leagues or clubs, typically fall under the 501(c)(7) or (c)(13)  categories.

The world of IRS 501(c) designations is just as nuanced and complicated as you’d expect it to be. If you are interested in learning more about these other types of entities, this IRS resource lists each type of organizational code and what they mean. It also provides more information about whether contributions made to agencies with other designations are tax-deductible. 

Written by Matt Viola, Vice President of Program Analyst Operations at Charity Navigator.


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6 comments:

Unknown said...

It might help to explain the limits on the amount of charitable deductions one can take.

Unknown said...

I have been using Charity Navigator for the past 13 years, to help me make decisions on which charities are most deserving of my support. You offer a wealth of information for donors and I can't imagine how difficult these decisions would be without you. However, I do not remember ever seeing any charities designated as IRS 501(c)(3) charities. Would this not be a valuable bit of information to impart to the prospective donors who use your website? In my particular case it no longer matters. Thanks to the recent change in the tax law, for the year 2018, I did not get to deduct one penny for my (deductions?). Yet I donated nearly 6,000 dollars to charitable organizations. I may sound bitter, but I'm not. I will continue to give to the same 85 organizations I have been supporting. It was never really done to save money on my Federal Tax Return. I just hoped I could help those who were in far greater need of this money than I am. I retired from public school teaching in 1998 and have God to thank for being happy, able & willing to help those in need of, & so worthy of my support. Thank YOU for making this task so much easier to accomplish.

Unknown said...

Thank you for the information.

Unknown said...

I think it would be fair to tell people that the contributions are deductible only for people who itemize their tax returns and that since the last tax bill increased the standard deduction, the share of filers who will be itemizing will now be much smaller. So, for most people, there will be no deduction for contributions any longer except among very high-income filers. This may cause a substantial reduction in contributions from the rest of us, or a reduction in their size, if people are indeed sensitive to the after-tax cost to themselves of these contributions.

Greatcorrector

Unknown said...

Dear Unknown,
Charity Navigator said in the article:
"The only way to ensure that your donation to a charity is fully tax-deductible to the extent of the law is to give to an IRS-designated 501(c)(3) organization. These are the only types of organizations Charity Navigator currently evaluates with a star rating which makes for an easy rule of thumb: if a charity is rated you can be confident your gift is tax-deductible."
Therefore, if they are rating it, then it does qualify as tax deductible.

Unknown said...

You are a good person🤗