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Are Political Donations Tax Deductible?
As the political divide in America has steadily been growing, so too has the number of political donations to candidates. The 2020 presidential election saw just under $4 billion in donations between the candidates, according to watchdog OpenSecrets. That means the total amount of money raised in the 2016 presidential election was only $1.5 billion.
Because more Americans are becoming increasingly active in politics from a financial standpoint, there have been a few issues stemming from confusion about tax deductions. Although these financial issues are often quickly cleared up once the professionals get involved, it’s best to avoid them in the first place when possible.
What Does Tax Deductible Mean?
Before talking about political donations specifically, it’s important to understand exactly what tax-deductible means. There is a lot of confusion about what constitutes a deduction and what happens when an item is deducted.
A tax deduction reduces the tax liability of a person or organization by lowering their overall taxable income. Generally, a taxpayer incurs these expenses over a year and subtracts them from their total gross income. For instance, if you were to have a gross income of $50,000 and tax deductions totaling $2,000, your total taxable income would be a maximum of $48,000. Because the tax rate that you will pay will be applied to this lower number, you could end up saving a fairly significant amount in taxes by using deductions.
Various tax codes vary on both federal and state levels. The goal of offering tax deductions is typically to entice taxpayers to participate in programs that can benefit society at large. For example, donations to most registered charities will often be considered tax-deductible as they help those in need.
There are two different types of tax deductions available, and it’s important to note that you can only choose one or the other. They both have their own pros and cons as well as their own specific rules.
The simpler of the two choices is to take out the standard deduction. The federal government allows for a standard deduction on federal taxes, but it can increase each year due to inflation. Deductions can also vary depending on the taxpayer’s filing history.
Each state will also set its own tax laws for standard deductions that can vary and change annually. Unlike itemized deductions, a standard deduction will require no additional math because the flat rate guarantees that every taxpayer will have at least some amount of money that will not be subject to federal income tax.
The standard deduction rates in 2021 are as follows:
- $12,550 for single filers and married couples filing separately
- $18,800 for a head of household
- $25,100 for married couples filing jointly
Itemized deductions are more complicated than taking the flat rate of a standard deduction. It will require keeping track of all potential deductions over the past year and accurately calculating them when it’s time to file.
Although it might be a bit of a headache trying to file this way, it could save you a lot of money—unless you get some help from tax filing professionals. As a taxpayer, there are many different tax deductions available to you. Depending on how much money you have paid into them, it could be a substantial amount more than taking the standard deduction.
Some of the most commonly declared tax deductions include:
- Casualty and theft losses resulting from a federally declared disaster (if they exceed 10% of your adjusted gross income).
- Charitable cash contributions total up to 60% of your adjusted gross income. Items and property donations can also be itemized.
- Gambling losses and stock investment losses can also be itemized in certain situations.
- Long-term-care premiums in the cost are more than 10% of your adjusted gross income.
- Medical expenses are more than 7.5% of your adjusted gross income.
- Mortgage interest payments for up to $750,000 as well as mortgage insurance premiums.
- Retirement contributions up to $2,000 as a single filer or $4,000 as a married couple filing jointly.
- Self-employed health care premiums are 100% deductible as long as there are no options for participating in subsidized health care plans.
- State and local income, sales, and personal property tax payments for up to $10,000.
- Student loan interest for up to $2,500, unless your adjusted gross income is over $80,000 filing single or $165,000 if married and filing jointly.
- Teachers who buy classroom supplies totaling up to $250.
- Unreimbursed job-related expenses that exceed 2% of your adjusted gross income. You must also be either a reserve in the armed forces, a performing artist, a state or local government employee that works on a fee basis, or have expenses relating to being impaired.
Can Political Donations Be Deducted?
Regardless of how much money you may have donated to a political campaign, you will not be able to deduct any of it from your taxes. The IRS has made it very clear that donations to an individual politician or a political party will not be permitted as itemized deductions. The list also includes any money donated to committees, newsletters, advertisements, fundraiser event tickets, or Political Action Committees (PACs).
Whether you are filing as an individual or a business, there are no options for deducting any political contributions. Furthermore, you will not be able to deduct any expenses that you might have accrued as a volunteer for a political campaign. There is often confusion about this point as expenses accrued while working with charities are often permitted. The difference is that these charitable organizations must adhere to strict guidelines set by the IRS. These rules are very clear that political campaigns are not considered to be charitable organizations.
If you are still planning to donate money to a political cause, there are a few rules that you should know about that can keep you out of legal trouble.
The Federal Election Commission sets limits for how much you can donate politically:
- No more than $2,800 per candidate per election cycle.
- No more than $5,000 a year to a PAC.
- No more than $10,000 to state, district, or local parties combined.
- No more than $106,500 to a national party per year.
State tax laws can vary depending on what state you live in and can be very different from federal tax laws. For example, residents of Arkansas, Ohio, and Oregon do allow for a potential tax break for political campaign donations or other contributions. Montana is the only state that currently offers a tax deduction for these actions.
What Happens To The Money After The Election Is Over?
Since there is often so much money involved in a political campaign, it’s reasonable to ask what happens to the funds after the election. While there won’t be any refunds to donors, candidates can still use the money for positive political purposes. Some of the rules about permissible uses of political donations include:
- A maximum contribution of $2,000 to another federal candidate.
- Donations to charities that will not benefit the candidate in any way.
- Gifts or donations to anyone other than the candidate’s family.
- Transfers to future election campaigns of the same candidate.
- Unlimited transfers to national, state, or local political party committees.
What Donations Can Be Deducted?
Although political contributions are very clearly exempt from being deducted, plenty of similar deductions is still available. No one candidate, party, or organization will qualify as a charitable organization, but these are a few examples that do:
- Churches, synagogues, mosques, temples, or other religious organizations.
- Civil defense organizations are created under federal, state, or local law.
- Domestic fraternal societies if the funds are used exclusively for charitable purposes.
- Local, state, and federal governments if the funds are used solely for public benefits.
- Non-profit cemetery companies if the funds are dedicated to the care of the entire cemetery instead of one specific lot.
- Non-profit volunteer firefighter companies.
- War veterans organizations that the United States recognizes.
The IRS has made it very clear that no political donations of any kind will be permitted as a tax deduction. However, there are plenty of other charitable donations that can be deducted along with regular everyday expenses.
If you think you might be able to itemize your deductions and save more money than taking the standard deduction, you should talk to Coast One Financial Group today. We are tax resolution professionals who can help you with any questions about correctly filing your taxes. We’ve already helped hundreds of taxpayers file their taxes, enabling them to be more financially healthy. By assisting you in itemizing your deductions accurately, we guarantee you won’t overpay on your taxes.