Rosalind Evans
In the wake of escalating tensions and humanitarian concerns resulting from recent conflicts between Hamas and Israel, many Americans are moved to contribute to aid and relief efforts. While the desire to assist is commendable, navigating the complexities of tax and legal stipulations tied to overseas charitable giving is essential. This article provides a roadmap to ensure that your noble intentions are effectively translated into meaningful contributions without inadvertently crossing legal boundaries.
As Americans absorb agonizing reports about Hamas’ brutal terrorist attacks on Israeli civilians and Israel’s bombing of Gaza in retaliation, many may want to give to help those suffering. The charitable giving landscape, especially during crises, requires more than an open heart.
For those seeking tax deductions on their contributions, it’s crucial to ensure donations are made to qualified organizations. These primarily include religious establishments such as churches, synagogues, temples, and mosques within the U.S., as well as domestic nonprofit schools, hospitals, and organizations like the American Red Cross and United Way. One can use the IRS’s Tax Exempt Organization Search Tool to verify an organization’s charitable status or directly call the IRS. However, remember that religious institutions within the U.S. are inherently considered generous and are eligible for deductible donations even if they aren’t listed, with certain exceptions.
Tax deductions don’t typically extend to contributions made to non-U.S.-based charitable organizations. As laid out in section 170(c)(2)(A) of the tax code, for a contribution to be deductible, it should be channeled to an organization set up within the jurisdiction of the U.S. or its possessions. While it’s possible to donate to overseas charities, these contributions aren’t considered tax-deductible.
However, all hope isn’t lost for those wishing to aid foreign causes. One can consider donating to U.S.-based entities with a global outreach, such as the Red Cross. Such organizations typically qualify for charitable deductions if they cater to foreign countries and adhere to the rules of domestic tax-exempt charities.
Beware of workarounds. “Some U.S.-based charitable organizations may solicit donations to turn those funds to a foreign charity.” In some scenarios, donor-advised funds (DAFs) might be helpful to intermediaries for making tax-deductible charitable gifts to foreign entities. But it’s vital to tread cautiously and choose reputable organizations.
Certain exceptions exist to the rule, specifically for charity donations in Canada, Mexico, and Israel. For instance, the U.S.–Israel income tax treaty allows deductions for contributions to Israeli charitable entities if they comply with specific criteria.
Moreover, there are additional points to remember when making charitable gifts:
1. Itemize: Deductions require itemization on Schedule A.
2. Qualifying Organizations: Only donations to qualifying organizations are deductible.
3. Receipt: Always retain a receipt for cash donations.
4. Value of Donor Incentives: Deductions should only be for amounts exceeding the value of goods or services received in return.
5. Donate Appreciated Assets: Donating assets like appreciated stocks can be advantageous.
6. Limits: Deductions for charitable contributions typically have caps related to one’s AGI.
7. Timing: Contributions should be made by December 31 of the tax year.
Other rules and restrictions may apply. If you have questions about the deductibility of a contribution, the legitimacy of an organization or donor arrangement, or whether you can send money or other assets abroad, check with your tax or legal professional. As with any financial transaction, it’s always prudent to seek expert guidance to ensure that your efforts are practical and in compliance with the law.
