In my last post about making a year analysis of where our tzedakah funds ended up going versus our goals of where we would like them to go, I received a question that deserves a follow-up post because it represents one of many legal misconceptions and potential pitfalls when it comes to filing tax returns.
An anonymous commenter asks:
"Do you actually donate to K-12 schools or do you consider your tuition, which is tax deductible, your tzeddakah?"
As tuition is NEVER tax deductible on a Schedule A* as a "charitable contribution," I believe this commenter was asking if we donate beyond what many schools require in "donations" if your child is going to be a student in their school, which I will call "tuition extras." The short answer is yes, this is our primary charitable priority, but is basically irrelevant to the topic of this post.
Many schools divide their tuition statements up into numerous components: tuition, textbook fee, activity fee, scholarship fund, synagogue fee, script fee, and banquet fee. Some expenses are per child, others are per family. I believe, and others concur, that the schools try to lessen the blow of tuition by making some the components "charitable."
The problem is that from a legal standpoint, these tuition extras are NOT considered charitable, and as such as not tax deductible. IRS Publication 526-Charitable Contributions states:
"Tuition, or amounts you pay instead of tuition, even if you pay them for children to attend parochial schools or qualifying non-profit day care centers. You also cannot deduct any fixed amount you may be required to pay in addition to the tuition fee to enroll in a private school, even if it is designated as a "donation."
If you aren't hiring me to do your taxes, I cannot tell you what to do. But, consider yourself forewarned.
Now you might be asking: is there anything else that I might assume is deductible which isn't? (Possibly).
Common fund raising techniques in the Orthodox Jewish world include banquets, concerts, theatrical performances commonly put on by girls' schools, the very popular "Chinese Auction," and raffles. I will give my analysis of each one below.
IRS Topic 506-Contributions states: "If your contribution entitles you to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received."
The tax deductible portion of the banquet fee is usually accounted for by the organization that hosts the banquet and, as such, is straightforward. Where the organization does not provide such documentation, an honest assessment of what the Fair Market Value (FMV) of such a meal would cost you in an equivalent setting is in order.
Admission to frum fundraising concerts and theatrical performances are more complicated, since I've rarely seen these organizations provide you with a base amount beyond which everything else is deductible. As nearly all public performances of frum Jewish Music concerts are put on by charitable organizations, it is difficult to determine what the FMV would be in the "real world." If you want to play it safe, I would consider the lowest priced ticket to be FMV and any amount paid beyond that to be charitable, unless you can find an equivalent performance to help determine value. Theatrical performances are often put on by public high school also, and therefore, I believe one could compare ticket prices and assume any additional cost is charitable.
The extremely popular "Chinese Auction," as well as raffles, are considered gambling by the IRS, and as such are not at all deductible (although if you do win and claim your winning as income, you can take your losses too). The IRS does not assign a FMV to gambling and considers whatever the consumer pays to be the FMV:
"Costs of raffles, bingo, lottery, etc. You cannot deduct as a charitable contribution amounts you pay to buy raffle or lottery or to play bingo or other games of chance."
Sorry to be the bearer of bad news. But, if you are the victim of an IRS audit, you might thank me. :)
Please see: IRS Topic 506-Contributions , IRS Publication 526-Charitable Contributions.
*Tuition for pre-school, as well as for before and after, and camps may qualify for the the Child and Dependent Care Tax Credit, subject to certain regulations and limitations. In short, one may take a tax credit which amounts to 20-35% of the for qualified child care expenses of up to $3000 for one child or $6000 for two or more children, which amounts to a credit of $600-$1050 for one child or $1200-2100 for two or more children.