Five times this past year, I've had to sort out when a donation by a church member is tax deductible, and when it is not. That's why I put together the following guide -- and if it helps, feel free to borrow it.
Sam Smith is a student at our school, and needs help with tuition. A friend gives $500 to the church and says, “This is for Sam.”
What a nice gift!
But it’s not tax-deductible.
You can’t give money to a person — the Internal Revenue Service (IRS) won’t allow it.
But the church helps students pay their tuition.
Yes, we’ve a program that’s run by the church.
So Sam could apply to the church’s program . . .
And donations to that program are tax-deductible. Donations to Sam are not.
Can I give the money to the church, and tell it to give the money to Sam?
You may suggest it goes to Sam, but the IRS says the church needs to decide who benefits — not the donor. Likewise, you can give money to Community Services, but you can’t tell them who gets help.
What if Sam gets sick?
The church could set up a special fund to help Sam, or it could use donations to the Pastor’s Fund. But again, the church decides where the money goes.
What about gifts to Student Missionaries?
The same rule applies — let’s say Sam wants to go on a mission trip, and the church votes to give him $2000 from the Mission Fund “just as soon as we can afford it.”
So Sam asks for donations to the Mission Fund.
And if enough money came in, then Sam gets the money that was voted.
What if Sam’s friends donate $2500 — $500 more than was voted?
The IRS says that money went to a church program — the Mission Fund — so the church decides where that “extra” money goes.
Could Sam ask for it?
Yes, Sam could ask for another $500. But if the church decides somebody else needs the money even more, then it could give that money to them.
That’s not fair!
Fair or not, the IRS does not allow “directed donations” to specific people.
But churches allow it!
The law is clear: gifts to programs may be tax-deductible. But gifts to people are not.