The IRS allows tax deductions for charitable donations made to nonprofit organizations, such as those granted 501(c)(3) tax-exempt status. Taxpayers who itemize on their annual tax returns may claim the deductions in the tax year in which the charitable donation was made. Charitable donations to foreign organizations are deductible only if made to charities in specific countries approved by the IRS for charitable tax deductions. Generally, donations to qualified foreign charities are deductible if the charities would qualify for tax-exemption under U.S. laws. Whether your donation qualifies for a deduction depends on other factors, as well.
A United States-Canada income tax treaty allows tax deductions for charitable donations made to Canadian charities. The deduction is usually available only to people who have income from sources in Canada for the tax year in which the donation is made. The deduction is calculated based on your adjustable gross income from Canada. Donations to Canadian charities are subject to U.S. laws for charitable donation, including percentage limits based on your adjustable gross income and the dollar amount of deductions you make take. The IRS Publication 597, Information on the United States-Canada Income Tax Treaty, explains the tax treaty and provides instructions for claiming a deduction for charitable donations made to Canadian charities (see Resources).
A United States-Mexico income tax treaty allows deductions for contributions to Mexican charities if the contributions would qualify under U.S. tax law as a charitable donation to a public charity. The contribution is subject to the same laws as would be applied in the U.S. You must have income from Mexico to take the deduction. Limits on the deductions you may take are based on your adjusted gross income from Mexico for the tax year in which the donation was made.
Contributions to Israeli charities that would be tax-exempt under U.S. law are deductible under the rules of the United States-Israel income tax treaty. The donor must have received income from sources in Israel in the year the contribution was made. Deductions can be taken on contributions to Israeli charities that make up no more than 25 percent of your adjusted gross income from Israeli sources. Other deduction limits apply.
Two types of deductible charitable donations involve nonprofits located in other countries but are not considered donations to foreign charities by the IRS. Charitable donations are deductible if made to U.S. nonprofits that transfer funds to foreign charitable organizations but retain control of the funds, including determining how the funds are used. Charitable contributions are also deductible if the foreign charity is an administrative office of a U.S. nonprofit organization.
Limits on Deductions
Limits on deductions apply to all charitable donations, including those made to qualifying foreign charities. The standard limit allows deductions for donations that total up to 50 percent of your adjusted gross income for the year. But deductions may be limited to 20 percent or 30 percent of adjusted gross income, depending on the type of organization and the type of donation made. The IRS Publication 526 contains detailed information about limits on deductions (see Resources).
Gail Sessoms, a grant writer and nonprofit consultant, writes about nonprofit, small business and personal finance issues. She volunteers as a court-appointed child advocate, has a background in social services and writes about issues important to families. Sessoms holds a Bachelor of Arts degree in liberal studies.