What’s deductible and what’s not?

Your clients are sure to ask about charitable tax deductions as year-end approaches. As an advisor, you’re already working with clients on financial and tax planning all year long, but this is the time when many clients buckle down. Whether it’s the change in the weather or the imminent end of the calendar or tax year, autumn is a time to reassess and consider charitable giving.

Charitable giving may be especially high on the planning radar right now because of the many national fundraising initiatives that kick into gear this time of year. You have probably noticed that many different types of causes are celebrated each month. October, in health-related charities alone, is National ADHD Awareness Month, National Down Syndrome Awareness Month, Pregnancy and Infant Loss Awareness Month, Spina Bifida Awareness Month, National Physical Therapy Month and many more. 

Make sure your clients are aware that there are specific parameters around tax deductibility before they respond to requests from organizations as well as friends and family members. As an advisor, you might consider the following:

  • Section 501(c) of the Internal Revenue Code lays out the requirements for organizations to be considered tax-exempt—a status for which an organization must seek IRS approval. 
  • Tax exemptions apply to certain types of nonprofit organizations, but status as a nonprofit (which is a state law construct) does not necessarily mean that the organization will be exempt from Federal income taxes.
  • Even under Section 501(c), there are different types of nonprofits that are recognized by the IRS as tax-exempt. 
  • To qualify under the Internal Revenue Code Section 170 charitable deduction gifts to Section 501(c)(3) organizations, for example, the recipient must be organized and operated exclusively for “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals.” “Charitable,” according to the IRS, has a very narrow definition.   
  • Your clients may not only support 501(c)(3) charities, but also social welfare groups organized under Section 501(c)(4). Examples of social welfare groups include neighborhood associations, veterans organizations, volunteer fire departments and other civic groups whose net earnings are used to promote the common good. Donations to social welfare groups are tax deductible in only certain cases (g., gifts to volunteer fire departments and veterans organizations). 
  • Chambers of commerce and other business leagues fall under Section 501(c)(6); donations to these entities are not tax deductible. 

For clients looking to connect with the needs of our region, Greater Cincinnati Foundation (GCF) can recommend local nonprofits that align with a donor’s specific interests. You can leverage GCF’s deep community knowledge and philanthropic expertise for your client’s maximum impact. Please connect with Michele Carey, CAP®, Director, PA Relations at michele.carey@gcfdn.org to chat more about how GCF can serve your client’s unique charitable goals.

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