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Making Charitable Contributions During a Pandemic

Our clients may think that all contributions are tax deductible, but that may not actually be the case. Columnist Jody Linick shares her thoughts. Let’s take a moment to review all of these categories and what clients may need to know from a tax and accounting perspective.

Oct 21st 2020
Owner FitBooks Pro
Columnist
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man writing a charity donation check
donald gruener_istock_donation check

Many people have been making charitable contributions during the pandemic to individuals, causes, businesses and political candidates. Sometimes the donation is made by check or credit card, sometimes on a crowdfunding platform such as GoFundMe. In other cases, contribution is accepted directly on a website.

Here's a list of donation categories:

Donations to Individuals or Businesses

Lots of people who have lost their job or their business, or are experiencing a severe downturn (such as local privately-owned movie theatres, or hair and nail salons) are setting up crowdfunding campaigns to save their businesses. Sometimes our clients make contributions using their business account, instead of their personal account and they usually think their contribution is a deductible business expense.

Here is what GoFundMe says on their website regarding contributions made on their site, “Donations made to a personal GoFundMe fundraiser, rather than a charity fundraiser, are generally considered to be personal gifts and are not guaranteed to be tax-deductible.”

Key Takeaway: Donations from a business to an individual, on any platform, are generally not a tax- deductible business expense. Donations from one business to another are generally not a tax-deductible business expense if the recipient is not a qualified organization.

Donations to Causes

Many causes are also fundraising right now, from animal rights to human rights and everything in between. If our clients make contributions to these causes from a business account, it is only a charitable contribution if the funds went to what the IRS calls a qualified contribution to a qualifying organization

Normally, if the contribution has been made to a qualifying organization, that organization will send the donor letter acknowledging the date and amount of the contribution; without that letter, the IRS could ostensibly deny the expense deduction. You can also proactively use the IRS online search tool to lookup qualifying organizations, located at: https://apps.irs.gov/app/eos/

Donations to Political Candidates

Political contributions are not tax-deductible expenses, period. If I see a political contribution on a client’s credit card, I post the expense to an account which I name “Non-Deductible Political Contributions.”

Conclusion

Whether our clients are Corporations, LLCs or sole proprietors, we need to be aware of which contributions are tax deductible business expenses, and which are not. The issue is compounded this year by the pandemic and the election and as we near the year-end charitable giving season, we can play a key role in educating our clients on what is and what is not a tax-deductible business expense.

Of Note: For individual taxpayers, tax year 2020 does have a temporary suspension of limits on charitable contributions per this IRS link

Replies (1)

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Julian Block
By Julian Block
Oct 21st 2020 15:17

Helpful and clearly worded discussion.

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