When tax season rolls around each spring, a new crop of questions may arise concerning clients’ gifts to various organizations and whether those donations qualify as tax-deductible charitable contributions.

Keep in mind that 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.

Furthermore, 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 for 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. The Community Foundation of Anne Arundel County is a 501(c)(3) organization and can help you navigate the tax-exempt waters. For example, contributions to a donor advised fund are considered to be tax exempt.

No doubt, many of your clients 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 only in certain cases (e.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. 

If you have any questions about the tax deductibility of your clients’ contributions to various organizations, please reach out to the team at CFAAC. We are immersed in the world of Section 501(c) every single day and we are a 501(c)(3) organization that is happy to help you navigate the rules.

For more information contact our Development Department at 410.280.1102 x 102 or via email at Amy@cfaac.org.