It has been said that “the best things in life are free, but sooner or later the government will find a way to tax them.”
When it comes to paying taxes, no one gets excited. It’s a headache to get all the forms, records, and receipts together. Then, once you do get your return filed, it’s just plain frustrating when you realize how much of your hard-earned money is going somewhere other than in your pocket!
We all understand that tax evasion is wrong; paying taxes is essential for funding the society we enjoy. However, tax avoidance—taking advantage of legal deductions and credits that the IRS makes available—is not only smart…it’s good money management.
For the past 40+ years, we’ve guided all kinds of small businesses through complicated tax preparations. And we’ve helped them save a lot of money through sensible deductions.
One of the questions we’ve gotten over the years is: “Are political donations tax deductible?”
Politics, in general, has become extremely heated (my team vs your team), and the laws regarding money in politics have often been confusing. While we’re not here to tell you how to spend your money politically, we hope this blog post helps clear up any uncertainty you might have as far as what the law says you’re allowed to do.
Are Political Donations Tax Deductible?
The simple answer to whether or not political donations are tax deductible is “no.” However, there are still ways to donate, and plenty of people have been taking advantage of them over the past several years.
As more and more people have become politically involved in recent elections (especially at the national level), the amount of money spent on those events has skyrocketed.
The most recent national elections in 2020 broke all kinds of records for spending. Advertising costs were estimated to be around nearly $8.4 billion. When you add in expenses related to staff salaries, events, travel, and everything else that goes into a campaign, the total easily reaches $14 billion.
How Does All That Money Get Raised?
Historically, candidates for political office managed to fund their campaigns either personally or through individual donations. That all changed in 2010 with a ruling by the Supreme Court in a case commonly referred to as “Citizens United.”
In their decision, the Court determined that limits on the political spending of corporations and unions is equivalent to limiting their free speech. Therefore, it is unconstitutional.
So now, much of the money that goes to get candidates elected comes from large “Super PACs” (Political Action Committees). These are independent groups that are formed to support their favored candidates. While these organizations are restricted from giving money directly to the candidate’s campaign, there are no limits on how much they can spend on behalf of those individuals.
And because Super PACs can receive unlimited donations, large corporations and powerful labor organizations who want to influence the outcomes of elections by spending large amounts of money now have a way to give as much as they want.
I’m Just One Person. How Can I Contribute?
In addition to giving a limited amount directly to political campaigns, individuals can donate to PACs, Super PACs, and party committees. Limits on how much you can give to these different groups are determined by the Federal Election Commission Contribution Limits.
For the 2021-2022 federal elections, those limits are:
- To the candidate: $2,900
- To a standard PAC: $5,000 (There is no limit on contributions to Super PACs.)
- To a state, local, or district party: $10,000 (combined)
- To a national party: $36,500
However, the IRS does not allow contributions to any politician or political party to count as a tax deduction.
You might have the thought, “What if I just donate to a charity that supports the same candidate/values that I do, use that money as a deduction, then let them use the funds on behalf of the candidate I like?” While that does seem like a clever workaround, the IRS is one step ahead of you.
Charitable organizations, commonly known as 501(c)(3)’s because of the section of the U.S. Tax Code that defines them, aren’t allowed to financially participate in political campaigns. In fact, the IRS plainly says they “may not make a contribution to a political organization…such as a candidate committee, political party committee or political action committee.”
While they would probably appreciate your giving, they could get in big trouble for using it inappropriately.
What Can I Deduct Then?
If donations to political campaigns are not deductible, what is?
Finding tax deductions that you do qualify for is one of the few bright spots in preparing your tax returns. (Although, as Jeff Foxworthy once noted, “If your biggest tax deduction was bail money…you might be a redneck.”) Those are the moments when you discover that a little bit of the money you worked so hard for gets to stay with you.
The IRS lists several types of organizations where you can give your money and then claim that donation as a charitable contribution deduction on your tax return. Here are a few:
- A group “organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals”;
- A religious organization;
- A U.S. military veterans’ organization;
- A nonprofit volunteer fire company;
- A fraternal society
Need a Guide to Navigate Your Taxes?
If you find yourself wanting to be like Snoopy and send a postcard saying, “Dear IRS, I am writing to you to cancel my subscription. Please remove my name from your mailing list.”…we completely understand.
Rules and regulations about political contributions are just one of many areas that the IRS expects taxpayers to understand. Honestly, they enforce those rules whether you understand them or not.
If you want to free yourself from the stress of knowing what giving is deductible and what isn’t…if you want to maximize your deductions so you can minimize your tax burden…then schedule a call with one of our experienced tax professionals.
We’ve seen it all in our 40+ years of helping small business owners just like you through our various tax services…and we know the difference having your taxes in order can make.