What is a Qualified Charitable Organization?

November 18, 2009

With the pilanthropic season ahead of us, I thought it might be a wise idea to explain what a qualified charitable organization is – at least according to tax law.

Donations to qualified charitable organizations are typically deductible on individual income tax return, but what is a qualified charitable organization?  Many times, people will think that donations can be deducted when they can not.    An example that I usually bring up to explain this is related to a local homeowner’s association in the area.  At least once a year, they send out a flyer that promotes a neighborhood get together (aka “party”).  In the flyer they specifically state that they need donations for the keg fund and to remember that “these are tax deductible.”  I hate to burst their bubble, but they are not tax deductible for a host of reasons.  Primarily because the donations are not made to a qualified charity.    The homeowner’s association is a tax-exempt organization (aka “non-profit”), but it does not have a charitable purpose.

To know which contributions are deductible, one must understand the difference between tax-exempt and a qualified charity for tax deductibility purposes.

A tax-exempt organization basically means that the organization is exempt from paying income tax themselves.  They typically receive income from a variety of means such as membership fees, dues, or even donations.  Individuals making contributions to these organizations may or may not receive a tax deduction.  The Internal Revenue Service (“IRS”) defines 27 different types of tax-exempt organizations under Section 501(c); however, contributions in only a handful of these categories is actually a tax deductible charitable contribution.

Generally speaking, to qualify for tax deductible contributions, the organization must generally have a “charitable purpose.”

There are several types of charities that are presumed to be charities by the IRS.  In other words, they do not have to apply to be listed as a charity.  These include most government organizations including, the US Government (in case you don’t think you are donating enough already), any state government, local government, the District of Columbia or the government of a US possession.  Most churches and other religious organizations are typically presumed to be charities as well.

Other organizations from which donations may be deductible include those that are organized for the following purposes:  religious, charitable, educational, scientific, literary, the prevention of cruelty to children or animals, or the promotion of amateur sports competition.  Other charities that may be deductible include veterans’ organizations, domestic fraternal societies, and certain nonprofit cemetery companies.

Most other organizations must apply to be listed as a deductible charity.  Charities that must apply for exemption include private foundations, public charities, donor advised funds, charitable trusts and pooled income funds.  IRS Publication 78 list of thousands of organizations which are eligible for tax deductible contributions.    The listing is searchable and available online here.  You can also contact the IRS directly at 1-877-829-5500 determine if a donation qualifies.

A few common organizations/areas that people think are deductible that are not include:

  • “The Fraternal Order of the Police.”   I am sure everyone has received these phone calls.   Deductions are generally not tax-deductible.  It even states this at the bottom of their receipt.
  • “Magazine subscriptions.”  Quite often organizations do a fundraiser that involves magazine sales for a charity.  These “donations” are not deductible.  They are not “donations” at all since you receive something of value.  The same does with girl scout cookies and boy scout popcorn.

If you are looking for a good charity to donate to this year, check out the Clover Area Assitance Center.  They are doing wonderful things in our local area.

Donna Bordeaux, CPA with Calculated Moves

Creativity and CPAs don’t generally go together.  Most people think of CPAs as nerdy accountants who can’t talk with people.  Well, it’s time to break that stereotype.  Lively, friendly, and knowledgeable can be a part of your relationship with your CPA as demonstrated by Donna and Chad Bordeaux.  They have over 50 years of combined experience as entrepreneurial CPAs.  They’ve owned businesses and helped business owners exceed their wildest dreams.   They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.