Not all nonprofits are tax-exempt.
Throughout your career, you might be asked to work with or for a nonprofit organization. This can be as an employee of a charity, board member of a professional association or committee member of a fund-raiser. Understanding the different types of nonprofits and their ability to raise funds that are tax deductible will help you perform more professionally and enhance your status among your peers.
One way to determine whether a fund-raiser offers donors the chance to get a tax deduction is to determine the organization’s tax status. If a for-profit business holds a fund-raiser for a nonprofit, the donation might not be tax-deductible unless the nonprofit is directly involved and the for-profit is collecting donations on behalf of the nonprofit. Some nonprofits do not have federal tax-exempt status, choosing to incorporate at the state level and not seek Internal Revenue Service designation as a 501(c) organization. Even some 501(c) tax-exempt organizations, such as a trade association, can’t offer tax deductions for donations. Those that can, such as charities and foundations, will be able to provide proof of their status to collect tax-deductible donations.
If your company sponsors a charity event or
you are soliciting corporations on behalf of a nonprofit, understand that advertising, promotion, public relations and other marketing promotion qualifies as tangible value, reducing or eliminating the potential for a tax write-off. This shouldn’t be a problem for most businesses, however, since the payment of a sponsorship then becomes a marketing expense, reducing the business’s net income and income tax liability.
Type of Donation
Even if you donate to a tax-exempt charity that allows donors to take a tax deduction, what you donate might not qualify for a write-off. This includes donations of time or professional services. For example, if you are donating your time to provide legal services, marketing help or website design, you can’t deduct your hourly fee. If you donate goods, you can’t deduct the retail value of that inventory. If you donate old furniture, equipment, inventory or other assets, you must determine the fair market value for them and whether or not the business has already depreciated them. The IRS also has different formulas for calculating how much of a deduction you can receive for certain donations, such as allowing donors to receive a token appreciation gift while still writing off the entire amount of an event entry fee.
Making or Soliciting Donations