“Akamai Money” seeks out local experts to answer questions about business in Hawaii. If you have an issue you would like us to tackle, please email it to business@staradvertiser.com and put “Akamai Money” in the subject line.
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QUESTION: As the holiday season approaches, people’s thoughts turn not only to buying presents for loved ones, but to making year-end, tax-deductible gifts to nonprofits. How can a donor make sure the nonprofit to which they are giving will net them a tax deduction?
ANSWER: There is a determination the IRS issues to every nonprofit organization that seeks to solicit contributions from the community.
An advanced ruling is a period of testing for the nonprofit organization where, if they fulfill all necessary requirements over that year, that they’ve been supported by the community, etc., they would receive their final determination as a 501(c)(3) organization. Gifts can be tax-deductible to the donor’s limit (based on) their level of earnings for the year, and that differs for everyone.
Q: It’s fairly common knowledge that giving to a designated 501(c)(3) organization will be tax-deductible, but are there other nonprofit designations to whom monetary gifts also will be deductible?
A: There are other organizations that are not 501(c)(3) that can also receive contributions that are tax-deductible.
501(c)(1)s are corporations that are organizations like, for example, federal credit unions. You can make a contribution to that type of organization for public purposes and you can still get a tax deduction.
Did you know the weirdest one is cemeteries? They can receive tax-deductible contributions. They are 501(c)(13) organizations.
There are others, like supportive organizations such as a hospital or a school. Even government entities can receive tax-deductible contributions. Let’s say I want to support the DOE,
for example. As long as (the donation) is for public purposes, even though people don’t trust that and would be afraid the funds would be mixed up with the general fund, the donation would be tax-deductible. Most people prefer to give to an incorporated entity, like a foundation, like the McKinley High School Foundation that’s a 501(c)(3); it’s clearer to the donating public as to where their funds are going.
Q: Are there situations in which the whole gift is not deductible?
A: Not all gifts are 100 percent deductible. In the case of a fundraising gala, let’s say it costs $100 to go to this thing. You buy the ticket and OK, it’s tax-deductible, but now a portion of that $100 you paid is not tax-deductible. That amount should be noted on your ticket because the deal is, you give a gift to a charitable organization with no benefit back to you. With a benefit dinner or you get entertainment, whatever, if it’s a golf tournament, your golf game, that amount needs to be subtracted from the amount you contribute. The remaining amount is tax-deductible.
Q: So in order to be able to write off 100 percent of a gift, the donor cannot receive anything of value in return?
A: If the organization is using the support to advance their programs into the community, even for restricted support such as a capital campaign or specific program, if you are not getting anything back from it, then you know your gift is completely tax-deductible up to your specific tax bracket.
Let’s say you give $1,000 to a particular organization. Federally, if you qualify for the entire amount, you get that deduction, but on the state side, let’s say you already maxed out because of the amount of money you earned for that year. You have five years to use that deduction, you can spread it across that five-year period. Your CPA or tax guy would be the best person to work with on that because nonprofit organizations are not tax experts.
Q: What are the best resources for consumers to determine how best to direct their year-end giving?
A: That’s a really good question. Charitable giving is a huge part of your estate-planning process, and it can be very favorable (taxwise).
I would say the best person to talk with, in regard to this sort of thing, is people who hear about the needs of the community firsthand, and that might be people who are in areas of formal giving, such as foundations, their directors, people who know the climate of the community’s needs.
Let’s say you as a human being have a feeling for children. What I would do, if I don’t have connections with resources like foundations, or people to talk to, is get online and start to do my homework. Look at websites. 990s (financial disclosures nonprofits must file with the IRS) are publicly available. Look at the leadership, the vision, the mission, how they spend their money. Look at their annual report. Do your due diligence, speak with your tax preparer and figure out what it is that you can possibly do.
Popular online resources include charitywatch.org Opens in a new tab, charitynavigator.org Opens in a new tab and guidestar.org Opens in a new tab.
Take some time with this. If you’re like me, I would like my money to make the most impact, and where it starts, it starts with me and my heart, and you know, it will make a difference.
