Are Contributions to a Private Foundation Tax Deductible?

Are contributions to a private foundation tax deductible?
Tax Deductible Donations

Donating to a charity, cause, or organization that one deems worthy is often a very good idea, particularly when these donations are tax deductible. A tax deductible donation is a donation for which the donator receives a tax reducing benefit. In order to qualify as tax deductible status, however, the organization that one donates to must have a nonprofit or not-for-profit status with the Internal Revenue Service (IRS). Organizations that do not have this status confirmed are not legally allowed to solicit gifts or monetary donations, making any donation they receive not tax deductible. There are, however, ways to know if the charity one is donating to is legitimate, and if the donation will be tax deductible. A little bit of research and careful consideration can help to save the donator a great deal of money and hassle.

Groups that fall under IRS Code 501(c) (3) are generally considered tax deductible. These groups include most, but not all, organizations with purposes that are charitable, religious, or educational in nature. Some sports organizations and some political organizations may also fall into this category, though it is vital that you research the organization thoroughly before donating. It is also important to note that gifts given to charities in foreign countries, or to charities without the proper foundation status, will not be tax deductible.

The organizations with a proper foundation status will, in most cases, be either a public charity, a private foundation, or a private operating foundation. Public charities are those that garner most or all of their income from the general public or from the government as defined under IRS codes 509(a)(1) through 509(a)(4). Private foundations are those foundations that receive all or most of their income through investments or endowments or that use the money received to give out grants or awards to other charitable organizations or funds. The United Way, a local fundraising organization found in most towns, is an example of this. These organizations are governed by IRS Code 509(a). Private operating foundations are those foundations that donate most or all of their assets to the cause it stands for and are governed by IRS Code 4942(i)(3).

All organizations are different, so it is important that you understand exactly how the organization works, and how it is funded. You should never be afraid to ask questions. Most reputable charities, funds, and groups will be up front about whether or not the donations given to them will be tax deductible. Research all organizations you plan on donating to in order to make sure they have not had complaints filed against them, and that they have not had any recent or serious problems with the IRS. Just because the donations made to a particular charity are not tax deductible does not automatically make that charity corrupt, but it can often be a “red flag” that the cause one is donating to is not legitimate, or entirely upfront about how they are using the money or gifts collected.