How to donate to foreign charities in a tax beneficial way
Read
This blog post was originally published on April 27, 2021. It was updated on March 10, 2023.
Our world and our community are becoming more and more global with each passing day. Borders seem to disappear with accessibility to the internet, telecommunications and travel.
South Florida is an especially cosmopolitan area, with a large percentage of residents having family, friends, businesses or other ties outside of the United States. As such, many individuals may be interested in supporting international charitable organizations and causes.
Our clients often wonder if there is any way for a U.S. individual to contribute to foreign charities and receive a tax benefit. Good news: there is!
In general, individuals who itemize deductions on Schedule A of their Federal tax return (Form 1040) are allowed a deduction for charitable contributions made to organizations which are tax exempt under Internal Revenue Code Section 501(c)(3), commonly referred to as nonprofit organizations. U.S. tax law only allows deductions for organizations that are created or organized in the United States, or any possession thereof.
However, there are ways to support foreign charitable activities and still receive a tax benefit.
- U.S. Organizations – The first way is to give to U.S. non-profit organizations that do direct work in foreign countries. For example, donating to the American Red Cross to help recovery efforts from a hurricane in a foreign country or giving to Doctors Without Borders, which conducts direct outreach in foreign countries. .
- “Friends of” Organization – Another way is to donate to a “Friends of” organization. These are U.S. nonprofit organizations whose primary purpose is to support a specific foreign charitable organization. They are formed as U.S. charities and follow U.S. guidelines. The money donated to these organizations is used primarily to support the named foreign charity. Funds that are contributed to the U.S. charity are used to support the organization’s work and missions in their home country.
- Private Foundations – Private foundations can make donations to foreign charities if they follow very specific rules. Keep in mind the tax deduction for contributions to private foundations is limited to only 30% of an individual’s adjusted gross income. Donations to public charities are currently limited to 60% of an individual’s adjusted gross income.
- Donor-Advised Funds – You may also be able to make a contribution to a foreign charity through a donor-advised fund (DAF). A DAF typically refers to a fund or account run by a 501(c)(3) organization (i.e., “sponsoring organization”). Similar to private foundations, the donor-advised fund must follow special procedures before it can transfer funds to a foreign charity. Some DAFs will not make donations to foreign charities because of these requirements. Consult with the sponsoring organization to determine if using a DAF may be an option for contributing to the foreign charity you wish to support.
As well-intended and generous as an individual may be, U.S. tax law limits charitable deductions to donations to U.S. charitable organizations, which means any individual U.S. taxpayer who wishes to give to a foreign charitable organization must plan the transfer correctly. Contact a Kaufman Rossin tax professional today to discuss your potential giving so we can help you structure your contributions in a way that is both tax beneficial and supportive of the foreign charities and causes that are close to your heart.
Heidi Suarez, CPA, is a Estate & Trust Senior Manager at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.
Janet Fifer, CPA, is a Estate & Trust Associate Principal at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.
As a U.S. Citizen filing my tax return with the IRS, can I receive a tax deduction for donations to any Mexican Foundation. If so, what type of receipt do I need? What type of deduction will I receive on my taxes? Are any types of Foundations not allowed for a deduction? Thank you in advance for your reply.
A U.S. taxpayer is not allowed a charitable deduction for contributions given directly to a foreign charity.
If the Mexican charity has a “friends of” organization that is organized as a US tax exempt organization to support the foreign entity, then you may be allowed a deduction for contributions given to the U.S. tax exempt organization. You must keep a copy of the check or transfer receipt in addition to the letter the organization should provide you documenting the contribution and their status as a U.S. tax exempt organization (501(c)(3)).
For 2021 there is an automatic $300 deduction (for single taxpayers) or $600 (for married filing jointly taxpayers) for cash contributions given to public charities if you are not able to itemized your deductions.
In order to itemize your deductions you would need to have total deductible medical expenses, taxes, charitable contributions, etc. greater than the standard deduction ($12,550 for single filers and $25,100 for married couples filing jointly).