Charitable Contribution Deductions in The United States - Effect of Benefit To Donor

Effect of Benefit To Donor

Contributions to charitable organizations are deductible to the donor, unless the donee organization uses any of its net earnings to benefit a private shareholder, or if it attempts to in any way influence political campaigns or legislation.

A contribution to a charitable organization need not be fully a "gift" in the statutory sense of the word to be deductible to the donor. The donor's allowable deduction will be reduced, however, by the amount of the "substantial benefit" conferred upon them as a result of their contribution.

To illustrate, suppose that the American Cancer Society is hosting a formal dance as a fund-raiser (the ACS is a certified charitable organization). Further suppose that the fair market value of a ticket to the dance is 75 USD, and that the donor pays 375 USD to purchase a ticket. The donor may claim only a 300 USD deduction, because the amount contributed (375 USD) is reduced by the amount of the benefit that he received (75 USD, the fair market value of the ticket). This holds true even if the donor does not actually attend the dance.

The taxable income of the donor is reduced by 300 USD. If the donor's income was in the 35% income tax bracket both before and after the deduction, the donor's tax liability (amount of taxes owed to the government) is reduced by 105 USD.