written by Ian Hall
Social media and the Internet have helped to make our world smaller. When natural disaster, tragedy, or war occurs, we want to help with contributions of money among other types of aid. At home, there are numerous charitable organizations that are providing all types of help and generally, your contributions to U.S. charities are tax-deductible. Contributions made to foreign charities are usually not tax-deductible; however, special sets of rules apply to charities in Canada, Israel and Mexico.
Current U.S. Rules on Charities
First, let’s take a brief look at some of the rules for U.S. charities. A charitable deduction is allowed only for a gift of money or property made to or for the use of an organization that meets qualification requirements. To be considered a charitable deduction, charitable contributions of $250 or more must be validated by a contemporaneous written acknowledgment from the charitable organization.
In the U.S.A., donating to “tax-exempt” organizations does not automatically qualify those donations as tax-deductible. The charitable organization must be qualified at the time of the contribution. It is the organization’s responsibility to ensure that its character, purposes, actions, and method of operation satisfy the qualification requirements so contributors have assurance that their contributions are tax-deductible at the time made.
While a native charity can use contributions abroad, it cannot merely transfer them to a foreign charity. Contributions are typically only deductible if it can be shown, among other requirements, the domestic charitable organization is not serving as an agent for, or conduit of, a foreign charitable organization.
Different Rules for Different Countries
Special rules and laws apply to charitable organizations in Canada, Israel and Mexico. Donations to certain Canadian charitable organizations covered under an income tax treaty with Canada may be tax-deductible. Under most circumstances, the taxpayer must have income from at least one source in Canada.
A tax treaty between the U.S. and Israel provides that a contribution to an Israeli charitable organization is deductible if and to the extent the contribution would have been treated as a charitable contribution if the organization had been created or organized under U.S. law. Similar to Canadian donations, the taxpayer must have income from sources in Israel.
The same method applies to contributions to Mexican charitable organizations. Under the United States-Mexico income tax treaty, a contribution to a Mexican charitable organization may be deductible but only if and to the extent the contribution would have been treated as a charitable contribution to a public charity created or organized under U.S. law. Usually, the taxpayer must have income sources in Mexico.
Contact us if you have any questions about contributions to foreign charities 417-881-0145.