During the 2012 presidential election, the Obama and Romney campaigns received over $4 billion from individual donations, political parties, action committees and congressional candidates. The total amount comes to over $4 billion, which is less than the 2012 GDP of Sweden, Austria, Chile and other small countries.
Of that $4 billion, almost $602 million came from individual donations. With the 2016 presidential election just around the corner, now is the time to tell your clients how donations to political campaigns could impact their tax returns.
It’s Not Tax Deductible
The IRS is crystal clear on this one. IRS Publication 529 reads:
You cannot deduct contributions made to a political candidate, a campaign committee, or a newsletter fund. Advertisements in convention bulletins and admissions to dinners or programs that benefit a political party or political candidate are not deductible.
If your client has donated to a campaign, political party, action committee/Super PAC, etc., it’s not tax deductible if the money went towards any organizations whose primary purpose is influencing legislation. This also holds true if they are financing their own campaign.
There Are Ways to Support a Cause AND Get a Tax Break
If your client wants to donate to a political cause and still receive a tax break, a non-profit might be the answer. There are two main types of non-profit organizations recognized by the IRS, and one of them is tax deductible.
501(c)(3): These are tax-exempt organizations that are public charities or private foundations. These groups are not allowed to campaign for or against candidates for political office. However, they can help educate politicians and the public on political issues. Donations to these organizations are tax deductible.
501(c)(4): These are organizations that can lobby or participate in campaigns, but can’t directly contribute money to candidates. For example, social welfare groups, like advocacy groups and civic clubs, fall into this category. Donations to these organizations are not tax deductible.
The bottom line: It is your duty to educate clients so they are armed with the information they need to make the smartest financial decisions. With political campaigns around the corner, make sure your clients know which donations can benefit their tax returns.