A child in your community passed away from cancer and neighbors set up a fundraiser to help her parents pay for the medical bills. Your colleague at work has a kid using crowdfunding to pay for a volunteer trip abroad and wants you to contribute. You can certainly make a donation to any cause you like, but not all causes are non-profits, which means that they will not be tax deductible.
Many people are using crowdfunding sites, such as Kickstarter, gofundme and YouCaring, to raise money for various activities and causes. Donors should be aware that just because they are donating to what they consider a good cause, such as a scholarship fund in the name of a deceased community leader, it does not mean that their contribution will be tax deductible. The IRS only allows deductions for Qualified Organizations.
A qualified organization should be presented as a 501(c)3 and usually will indicate that it is a non-profit in its description, which means it has applied with, and received, tax exempt status with the IRS. Qualified organizations can include: “nonprofit groups that are religious, charitable, educational, scientific or literary in purpose, or that work to prevent cruelty to children or animals” (§ 1.501(c)(3)-1). Donations made to an individual or other organizations, such as a civic group or a political campaign are NOT deductible as a charitable contribution. Nor is a donation to a foreign charity deductible (this is different than a US charity working in a foreign country, which would be deductible if it is a 501(c)3) with the exception of certain Canadian, Mexican and Israeli organizations, because the U.S. has treaties with these countries.
As with any donation, if you receive a benefit when making a donation through crowdfunding to a qualified organization, the benefit (if more than a token) would have to be subtracted from the amount donated. And no matter what method you have chosen to make your donation, if it is eligible for a charitable deduction, always retain a receipt, and if the amount is $250 or more, make sure you have a written acknowledgement from the charity as well.
Also, remember that if you own a business, you might be able to argue the reasonableness of it being a business expense, such as advertising or promotion. Obviously, the business needs to get some benefit and it needs to be reasonable.
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Copyright 2016 by Hallie Pentheny of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire.
