Contributions to non-profit organizations increase during the holidays. It’s an excellent way to support your favorite cause and the gifts are tax deductible on your income tax return.

The Revenue Act of 1917

Prior to the Act, charitable donations weren’t tax deductible. With passage of the Act, individuals were able to deduct their donations to tax-exempt organizations on their federal income tax for the first time. At that time, tax rates were increasing to fund the war effort during World War I. Making contributions tax deductible was a way to increase charitable giving at a time when it was decreasing.

Why They’re Tax Exempt

Non-profits work for the private and public good. They don’t seek to profit for their efforts or create personal gain. Organizations that qualify for 501(c)(3) status don’t have to pay taxes so that any money they raise or is donated can go back into the organization to further their work. They have a specific mission, such as churches, foundations and animal shelters.

Exclusions for Tax Exempt Status

If a non-profit organization earns too much income from activities unrelated to the organization’s mission, its tax-exempt status can be revoked. Charitable organizations have to file income tax returns each year to maintain their tax-exempt status. They have to provide information about donations received, their mission and board members. Their status can also be in jeopardy if the organization benefits any of the board members, officers, employees or other insiders.

5 Types of Non-Profits

Non-profit organizations fall into one of 5 categories.

  • Charitable organization
  • Churches and religious organizations
  • Political organizations
  • Private foundations
  • Other non-profits

They’re operated for specific purposes and must meet IRS requirements. It’s important research any charitable organization before making a monetary donation. Scams are particularly prevalent during the holidays when people are in an especially giving frame of mind. Research them online and utilize a charity evaluator to ensure they’re legitimate.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today (843) 347-0849 and discover why our clients return to Peavy and Associates, PC year after year!