Want to donate to a charity? Here鈥檚 what you should know.
叠测听, CFP
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If you鈥檙e thinking about donating money to a charity, there are a few things you should know to make sure you鈥檙e giving to a legitimate group and doing it in a tax-advantaged way.
Charities are divided into two types,聽, depending on their purpose and operations and on how they receive and pay out donations.
Private foundations typically are funded by a wealthy donor or family and often employ family members to run聽them. These foundations are聽聽at least 5% of the value of their endowment through grants.
Public charities, which are more common, typically are funded by many donors, including individuals, the government and private charities. Many people give to a public charity because they believe in its mission and want to contribute to its positive impact on society.
Make sure it鈥檚 tax-exempt
Public and private charities are set up as nonprofit organizations and receive tax-exempt status from the IRS under code 501(c)(3). Charities get and keep their tax-exempt status by filing documents annually with the IRS showing that their profits are used for 鈥渆xempt purposes.鈥� These include charitable, religious, educational, scientific or literary purposes; testing for public safety; fostering national or international amateur sports competition; and preventing cruelty to children or animals.
If you鈥檙e considering a donation, make sure the charity qualifies for tax-exempt status so you can take a tax deduction for part聽of your donation. This means you鈥檒l get a percentage of your donation back on your taxes, based on your tax bracket.
Because聽organizations must file annually with the IRS to maintain their tax-exempt status, they will have a 501(c)(3) determination letter stating they qualify for that status. Before you donate, ask the charity for a copy of its letter to retain for your records. After you donate, the charity should send you a receipt showing the amount of your contribution.
Know the contribution limits
Donations to public charities generally are deductible up to 50% of the donor鈥檚 adjusted gross income. Most contributions to聽private foundations are also tax-deductible, although deductions for some types of private foundations are limited to 30% of the donor鈥檚 AGI. Donations聽to a foreign charity probably won鈥檛聽be tax-deductible.
It鈥檚 always a good idea to speak with a tax consultant or certified public accountant before you decide 鈥� IRS rules are complex, and deduction limits can change depending on the type of organization you鈥檙e giving to. A professional can help you evaluate your donation and determine which method makes the most sense based on your situation.
, CFP, is the founder of聽聽in Los Angeles.
This story originally appeared on .听
