Wednesday, March 2, 2011

Charity Wednesdays - The Difference between Tax Exempt and Tax Deductible

So, have you filed your taxes yet?  Mine are done and our refund is on its way.  This year our tax situation was helped considerably by the addition of a happy, babbling, mess-making, little tax deduction.  Donating to charity is another, much less sticky way of saving on your taxes.  Here at the BBB, we often get questions from the public about whether or not contributions to a particular organization are tax deductible.  A group may solicit for funds and state that it is a 'tax exempt' organization, but does that automatically mean that the money you give them can be taken as a tax deduction?  The short answer is no.  Donors need to be careful about the wording they read and hear in a solicitation.

Tax exempt means that an organization does not have to pay taxes. Tax deductible means that a donor can deduct contributions to the organization on his or her federal income tax return. Most ‘tax deductible’ charities are classified by the IRS under section 501(c) 3 as charitable organizations.


Tax Exempt Organizations:

AARP (social welfare organization – no restrictions on lobbying or political activity)

Better Business Bureau (business organization)

Kansas State Troopers Association (fraternal organization)

Missouri State Troopers Association (fraternal organization)

Angel Flight Central (charity)

Tax Deductible Organizations:

Of the five organizations listed above, only Angel Flight Central   is an organization to whom contributions are tax deductible.

The other organizations are business, fraternal, and social welfare organizations that do not pay income tax on the dues collected from their members, thus they are considered 'tax exempt.'

Other examples of tax-deductible organizations are Harvesters, Hope House, City Union Mission, and places of worship.

Disclaimer: Our lawyers here at the BBB would appreciate it if I mentioned that any questions regarding your taxes should be directed to a qualified tax professional.  I am quite grateful that there are people out there who did not find their accounting and finance classes to be as terrifying as I did.

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