When is your ‘gift’ a charitably deductible donation?
When you are asked by a nonprofit to contribute to their cause and good works, it is natural to assume your gift is tax deductible. The unfortunate truth is that sometimes it is not.
Not every nonprofit is a charity; in fact, most nonprofits are not.
Think of nonprofits like federal credit unions, civic leagues, fraternities, pension funds, chambers of commerce, real estate boards, and business associations. These are nonprofits, but they may not be 501(c)3 charities. Contributions are tax deductible when given to 501(c)3 designated charitable organizations. It is easy to assume that donations to all service clubs and social welfare organizations qualify for tax deductibility. You may also be asked for a “donation” from a friend or family member, but these are gifts and don’t qualify for tax deductions.
The State of Nevada adopted AB 60, which requires charitable solicitation registration for any charity that intends to solicit tax-deductible contributions in Nevada. To check that you are giving your gift to a qualifying charity, look for the AB 60 disclaimer on printed solicitations you receive; this disclaimer provides the tax ID (EIN#) of the charity as well as states that donations may be tax-deductible under federal law. Charities are also required to tell you about their charitable status when verbally soliciting donations. But let’s face it, most people don’t know about AB 60.
When we are asked for a gift via mail, in person, or through social media, we tend to assume that we are making a donation that is tax deductible. While this can be confusing, understanding that most nonprofits are not charities is a good start. At the Community Foundation of Western Nevada, we spend significant time educating donors and the public about this issue.
Giving to a good cause — with or without a tax deduction — is a good thing. Sometimes we willingly choose to make a gift that is not tax deductible. Much of the crowdfunding online is not tax deductible. I have knowingly made some gifts through those sources; I’ve done it to benefit a person in need, not for the tax deduction. When you give money to help a family or an individual who has been struck by tragedy, it is not a tax-deductible gift. A good indicator is when a bank account is established to help a person or family and you are requested to send your gifts to that account; those gifts are not tax deductible.
Vehicle and Boat Donations
At the Community Foundation, we used to receive gifts of cars. Up until about 10 years ago, donors were allowed to deduct the fair market value of a car or boat donation using the Kelly Blue Book or some other valuation as verification. The IRS perceived this valuation system as allowing for overvaluations. To reduce overvaluations, the IRS now requires charities that quickly sell the vehicles report the actual sale price. Since most charities sell the vehicles to wholesalers, the donation value is quite a bit less than retail. There are some exceptions, such as 1) donating a vehicle with such a small value (under $500) that the deduction doesn’t require back-up; 2) donating the vehicle to a charity that will give it to a needy person, or; 3) donating to a charity that keeps the vehicle. I recommend selling the vehicle yourself and donating the proceeds to the charity. The charity almost always will end up with more money, and you’ll get a donation equal to the sale proceeds of the vehicle at retail value.
Internet Scams Pop Up Quickly After Tragedies
The day after the shooting in Orlando, dozens of giving opportunities popped up on the Internet. Within hours, everyone from CBS News to the Better Business Bureau to Fox News and hundreds of other media outlets were warning about potential scams. Websites had already been set-up, and I imagine thousands of donations were made to fake charities. Unfortunately, that is the world we now live in. Vigilance is critical to be sure your hard-earned dollars have the benefit you intend. The Community Foundation is happy to help anyone find a reputable, trustworthy charity appropriate to receive your generosity.
The Community Foundation Can Help
Not every community has a Community Foundation, so please take advantage of this resource. Getting burned once is enough to turn many people off of charitable giving. The Community Foundation can help you avoid making an unintended mistake by helping you choose a qualified charity and avoid sophisticated scams. We specialize in local giving and know the local charities by name, location, services, and efficiency. We can help ensure that your gift has a real impact. Working with us, you can feel confident about giving generously.
Learn more by contacting the Community Foundation. 775-333-5499, or nevadafund.org
Chris Askin is the president and CEO of the Community Foundation.
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