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One of the side benefits to donating to charity, besides helping worthy organizations, is that many donations are tax-deductible. This means that a portion of the donation can be counted against tax liabilities, thus encouraging taxpayers to use some of their income to benefit charity. Not all charitable contributions are considered tax-deductible donations, and mistakenly including deductions for ineligible groups may result in tax issues.
In most cases, donations must be made to charities and organizations within the country where taxes are filed. Many international charities approach this issue by having branch groups in many different countries, allowing a person to make tax-deductible donations to a national arm of an international group. In general, however, whether gifts are tax-deductible donations will depend on the tax status of the particular organization.
In the United States, there are three major types of charity that may qualify for tax-deductible donations. These generally have to do with educational, charitable, scientific, or public safety issues, though some other designations are allowed. The three major divisions that indicate status are public charities, private foundations, and private operating foundations.
Public charities are very common, and lean on contributions from the public or government grants for funding. Unlike private organizations, they tend not to rely on private sponsors. These organizations are recognizable by the tax designation of 501 or 509. Companies that list themselves as a 501 or 509 status group generally allow tax-deductible donations.
Private foundations are funded primarily through a core group of sponsors through endowments ad grants. These tend not to solicit funds from the public, but donations that are accepted are generally tax deductible. Private operating foundations are similar, but tend to use their money to directly support a cause or fight an issue, rather than giving grants to other foundations to handle the cause.
It is important to remember that there are many types of tax-deductible donations to these organizations other than money. Donations are based on the amount they are worth, not the form they come in. This means that donations of cars, clothing, blankets, or supplies may also be tax deductible donations, so long as they are given to a qualifying charity.
When making tax deductible donations, it is important to keep proper records and look up applicable rules for deductions. Be sure to get a receipt for any donations that will be claimed on taxes, even for a bag of second-hand clothes. Keep receipts handy in case of any audit or inquiry. It is also important to remember that most deductions are not 100% deductible, and the amount that is allowed to be deducted may depend on the type and tax status of the charitable organization.
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