Whether you are an individual planning to donate money to a 501c3 Nonprofit or an existing Nonprofit accepting donations, it is important to understand the restrictions and limitations of contributions; so as to make the most out of one’s 501c3 Tax Exempt Status.

Contributions You Cannot Deduct

There are some contributions you cannot deduct. There are others you can deduct only part of.

You cannot deduct as a charitable contribution:

1.      A contribution to a specific individual,

2.      A contribution to a nonqualified organization,

3.      The part of a contribution from which you receive or expect to receive a benefit,

4.      The value of your time or services,

5.      Your personal expenses,

6.      A qualified charitable distribution from an individual retirement arrangement (IRA),

7.      Appraisal fees,

8.      Certain contributions to donor advised funds, or

9.      Certain contributions of partial interests in property.

Detailed discussions of these items follow.

Contributions to Individuals

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 deceased members.
  • Contributions to individuals who are needy or worthy. This includes contributions to a qualified organization if you indicate that your contribution is for a specific person. But you can deduct a contribution that you give to a qualified organization that in turn helps needy or worthy individuals if you do not indicate that your contribution is for a specific person.

Example. You can deduct contributions for flood relief, hurricane relief, or other disaster relief to a qualified organization. However, you cannot deduct contributions earmarked for relief of a particular individual or family.

  • Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses.
  • Expenses you paid for another person who provided services to a qualified organization.

Example. Your son does missionary work. You pay his expenses. You cannot claim a deduction for your son’s unreimbursed expenses related to his contribution of services.

  • Payments to a hospital that are for a specific patient’s care or for services for a specific patient. You cannot deduct these payments even if the hospital is operated by a city, state, or other qualified organization.

http://www.irs.gov/publications/p526/ar02.html#en_US_publink1000229694

Most nonprofit organization’s seek 501c3 status from the IRS as it provides the most tax benefits.  501c3 nonprofits can apply for grants and provide tax deductible receipts to people who support the organization with donations.  501c3s are limited in their ability to lobby so if you want to do explicitly political work most of the time then another type of 501c would be appropriate.  501c4 organizations can participate in political campaigns and electoral politics to an unlimited extent, but donations made are not tax deductible.

 We’ll cover the difference between public charity and private foundation 501c3 organizations in another post shortly so stay tuned.

These are a couple of good resources that may help clarify which type of nonprofit your organization is.  If you’re still not sure, give us a call for your free 20 minute consultation at 800-928-4161.

IRS Tax Exempt Reference Chart: http://www.nonprofitlegalcenter.com/nonprofit-resources/tax-exempt-organization-chart.html

Common Nonprofit Definitions

501c3: Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, National or International Amateur Sports Competitions, Prevention of Cruelty to Children or Animals Organizations.

Charitable contributions are tax deductible. Limited ability or restrictions to lobbying.

501c4: Civic Leagues, Social Welfare Organizations, and Local Associations of Employees.

Charitable contributions are NOT tax deductible. Unlimited ability to lobby for legislation and the ability to participate in political campaigns and elections.