As charitable organizations emerge from pandemic restrictions, in-person fundraising events are beginning to rebound, especially athletic events that are held outside. This is a good time for a quick refresher course on the charitable deduction rules related to events, which can be tricky.
As a general rule, if you purchase a ticket to a fundraising event and attend the event, the IRS only allows a tax deduction for the portion of the ticket price for which you received nothing of tangible value in return. So, when the charity sends a receipt for the gift, you will see that the charity has subtracted the fair market value of the perks–food, beverage, entertainment, T-shirts, and other goodies–from the full amount of the contribution. The rules for raffles, auctions, and games of chance are also complex, exacerbated by the increase in virtual events and online fundraisers.
What’s more, while straightforward gifts to charities from your donor advised fund at the Community Foundation are perfectly fine (and indeed, one of the primary purposes of donor advised funds), it’s problematic to purchase even the charitable component of an event ticket using donor advised fund dollars.
What’s the reason for all of this complexity? Simply put, tax-deductible dollars cannot be used for private benefit. The whole point of the charitable tax deduction in the first place is to incentivize taxpayers to use their own money to help others. Even when a portion of a donation can be tied to funding the charity’s programs, the intermingling of event-related benefits back to the donor (even if it’s just a T-shirt or a chicken dinner) becomes too much of a tangled web, in the IRS’s view, to discern the true amount of the charitable deduction, and without that clarity, none of it is deductible.
The good news here is that the team at the Community Foundation is on top of it. We are here to answer your questions about the deductibility of certain transactions and how best to deploy your donor-advised or other fund assets to help the charities you care about.