Donating to charity? 10 legal considerations to keep in mind

One primary legal consideration when making a charitable donation is substantiation and the “quid pro quo” rule. As a donor, you cannot deduct the full amount of a contribution if you received goods or services in exchange (such as a dinner at a charity gala); you may only deduct the amount that exceeds the fair market value of the benefit received. Furthermore, for any single contribution of $250 or more, the IRS mandates that you obtain a contemporaneous written acknowledgment from the charity before filing your return. This document must explicitly state the amount of cash contributed and generally must include the phrase “no goods or services were provided in exchange for this contribution” to be legally valid for tax purposes. Without this specific verbiage, the deduction can be disallowed entirely upon audit, regardless of the proof of payment.

To ensure your donation is tax-deductible and goes to a legitimate organization, you must verify the charity’s tax-exempt status using the IRS Tax Exempt Organization Search (TEOS) tool. This database confirms if an organization is a qualified 501(c)(3) entity eligible to receive tax-deductible contributions. For Arizona taxpayers specifically, checking the IRS status is not enough if you intend to claim the state’s dollar-for-dollar tax credit; you must also verify that the charity appears on the Arizona Department of Revenue’s current list of Qualifying Charitable Organizations (QCOs) or Qualifying Foster Care Charitable Organizations (QFCOs). Using third-party evaluators like Charity Navigator can further vet the organization’s financial health and transparency, ensuring your contribution is used effectively.

As a tax attorney, tax professor, and CPA, I advise clients that charitable intent does not equal tax deductibility. I routinely see donors assume a donation qualifies because the organization sounds charitable. That assumption fails audits. If the recipient lacks active 501(c)(3) status on the gift date, the deduction dies completely. I have seen Florida and Texas donors lose six figure deductions after IRS verification showed administrative revocation. The second order risk includes penalties, interest, and multi year audit expansion unrelated to the donation itself.

You must independently verify the organization and strip the transaction of hidden benefits. I advise clients to confirm the exact legal name and EIN in the IRS database and to ensure the payment buys nothing in return. Gala tickets, sponsorship exposure, naming rights, or preferred access poison deductions with surgical efficiency. The less obvious risk arises when donors give real estate, LLC interests, or crypto. Improper valuation invites appraisal challenges and recharacterization with spillover into gift and estate tax exposure.

Also, I advise clients that documentation failures routinely destroy otherwise valid deductions. I treat charitable gifts like real estate closings. Missing acknowledgment letters or late appraisals void deductions regardless of intent. Once flagged, future filings face elevated scrutiny across all tax categories. I am working on three of these cases right now where clients disregarded my advice on requesting and maintaining clear documentation.

One critical legal consideration is whether the organization is a qualified charitable organization under Internal Revenue Code Section 170. Not every nonprofit, fundraiser, or online cause qualifies for a tax deduction, even if it has a charitable mission. Donating to an organization that is not IRS qualified means the contribution may not be deductible at all.

First, verify the organization’s status using the IRS Tax Exempt Organization Search to confirm it is eligible to receive tax deductible contributions. Second, maintain proper documentation. For cash donations, this means a bank record or written acknowledgment. For donations of $250 or more, a contemporaneous written acknowledgment from the charity is required. For noncash donations, especially property or high value items, additional valuation and reporting rules apply.

It is also important to ensure the donation provides no significant personal benefit in return. If goods or services are received, only the portion exceeding their fair market value may be deductible. Finally, the donation must be made within the tax year being claimed and reported correctly on the return, including itemizing deductions when required.

When making a charitable donation, one important legal issue is that deductibility is based on the tax status of the organization receiving the donation, not the intentions of the donor. Only donations made to those organizations that have been determined to be charitable organizations by the IRS pursuant to Internal Revenue Code Section 501(c)(3) are eligible for a federal income tax deduction. Donations made to Individuals, Political Organizations, GoFundMe Campaigns, or Foreign Charities Without A U.S. Fiscal Sponsor, regardless of their validity as charitable causes, do not qualify for tax deductibility.

To ensure your contribution will be tax-deductible and will ultimately be given to a legitimate charity, you should verify that the charity is a legitimate tax-exempt organization by searching for its name in the IRS Tax Exempt Organization Search before making your contribution. You should also confirm that the charity’s status is eligible to receive tax-deductible contributions. For any cash gifts in an amount of $250 or more, be sure to obtain a written acknowledgment at the time of contribution that includes the organization’s legal name, E.I.N., amount contributed, date of contribution and, if applicable, whether goods or services were provided in exchange for the contribution. The IRS could deny your deduction even if the charity is a valid charitable organization if you do not have the written acknowledgment. Verifying the status of the charity protects your tax position and your financial investment.

One legal consideration is to ensure that you give to the organization and not to individuals or fundraising intermediaries. A large number of individuals donate via crowdfunding sites, third-party fundraisers, or donate at charity events by giving funds directly. Such donations are not usually tax-deductible, even in cases where the final beneficiary is a qualified charity. To obtain deductions, the IRS requires the donations to pass through the tax-exempt organization. When you give a gift by using a platform or an intermediary, ensure that the platform itself is a 501(c)(3) organization and will then take your gift as a direct charitable contribution to be documented appropriately.

To be considered tax-deductible, make sure that the organization is listed in the IRS Business Master File as a public charity. Public charities will give you a deduction of up to 60 percent of your adjusted gross income in case of cash gifts. Also, ensure that the charity makes a written recognition of the donation that is more than $250 stating whether you received anything in return. To ensure that the organization is legitimate, verify its financial transparency through their Form 990 annual tax return. Check out the form to know how the charity uses donations and whether they have programs which align with their stated mission.

When you donate money to a charity, one important thing to consider is whether the charity is recognized by the IRS as a “qualified tax-exempt” charity under Section 501(c)(3) of the Internal Revenue Code. Once a charity receives this recognition, you will be able to claim the money you gave to the charity as a tax deduction on your tax return. You can look up the status of any tax-exempt organization at the IRS website where they have a searchable database. To make sure that your contributions are tax-deductible, check to see if the organization has a history of staying within the law, rather than using donations to fund personal interests, or to support illegal activities. Misusing donor money can cause the IRS to take away the tax deductibility of your contributions.

Before you give a donation to a charity, ask them to send you a receipt or acknowledgment letter confirming the date, amount of your contribution and stating that no goods or services were given to you in exchange for your contribution. If the charity does not provide you with this information, then you should not give to that organization.

Check if the organization is actually registered as a charity with Canada Revenue Agency before handing over money. Legitimate charities have registration numbers you can verify online and only registered charities can issue tax receipts that CRA will accept. Tons of organizations sound charitable but aren’t legally registered, which means your donation won’t be deductible.

People assume any nonprofit is a registered charity when that’s completely wrong. Lots of worthy causes operate as nonprofits without charitable status, so donations don’t qualify for tax deductions. If you care about the deduction you need to confirm registration status first, not after you’ve already donated.

Also watch for donation matching scams where someone claims they’ll match your contribution but the supposed matching organization doesn’t exist. Get everything in writing, including the charity’s registration number, and keep records of your donation with official receipts. CRA audits charitable deductions regularly, and if you can’t prove the organization was legitimately registered when you donated, you’ll lose the deduction plus potentially face penalties for false claims.

You need to take the timing of the donation into account as well. Any kind of charitable donations are only deductible in the year the money actually leaves your hands, rather than when you intend to give or pledge it. If you wait until the last minute and the transaction settles in January, then you’ve pushed the deduction into the next tax year. That’s why you need to make the donation before December 31.

And you’ll know that you’re dealing with a legitimate charity if they agree to issue a proper written receipt that clearly states whether you received anything in return and how much of your gift is deductible. If they can’t or won’t provide that, that’s usually a sign you shouldn’t be claiming the deduction at all.

One important legal step people should not forget when making a charitable donation is confirming that the organization is officially registered as a charity and eligible for tax deductions. I always recommend verifying the charity’s tax-exempt status through the relevant government authority and taking a little time to review its reputation, financial transparency and real-world impact.

From my experience advising clients at InCorp, this little diligence goes a long way. It protects donors from potential fraud, avoids tax complications and gives confidence that their contribution is genuinely making a difference. Being thoughtful about where you give allows you to support meaningful causes while also benefiting from the tax incentives intended for responsible charitable giving.