By: Jennifer Greening | Charity Analyst
Donors have been contacting BBB after receiving solicitations from 501(c)(4) organizations. Many of these donors do not realize that there are some fundamental differences between 501(c)(4) organizations and 501(c)(3) charities that affect the tax-deductibility of their contribution. Just because an organization is “tax-exempt,” doesn’t always mean your donation is tax-deductible. (By the way, “501(c)(4)” or “(c)(3),” refers to the section of the Internal Revenue Code (IRC) under which the charity has obtained its tax status.)
There are 27 different types of organizations that are tax-exempt by the Internal Revenue Service (IRS). Not all may solicit for charitable contributions, so before you give, donors should understand the differences between the tax-exempt codes and how contributions are treated by the IRS.
According to the Internal Revenue Service (IRS), 501(c)(4) organizations that are civic leagues and social welfare organizations that are operated to further the general welfare of the community. Most notably, volunteer fire companies and homeownership associations are 501(c)(4) organizations, as are several entities that lobby the government.
Donors should note that contributions made to a 501(c)(4) organization are not deductible as charitable contributions for federal income tax purposes, except when the donation is made to a volunteer fire company exclusively public purposes. (You should check with a tax advisor or contact the IRS directly for specific questions related to the deductibility of charity contributions.)
On the other hand, the vast majority of solicitations you receive will be from 501(c)(3) charities. There are nine different purposes for which a charity can organize and operate as a 501(c)(3) tax-exempt entity. According to the IRS, the most common types of 501(c)(3) charities are educational institutions and those organized for religious purposes. Contributions made to 501(c)(3) charities are tax-deductible for federal income tax purposes.
No matter the tax-exempt status, donors should always check out charities with your BBB to make sure they are giving with confidence.