What Should I Consider Before Donating to a Foreign Charity?

Charitable contributions to benefit causes overseas can make a tremendous impact on people’s lives around the world. In fact, GiveWell.org estimates that while it costs more than $100,000 to provide a child twelve years of education in New York City, just $3,000–$5,000 in international aid can save a person’s life. When supporting international charities, however, there are more factors to consider than when you give to charities that operate solely in the U.S. Before you decide where to put your charitable dollars, there are two important factors to consider.

 

Legal Restrictions

Any international financial transaction is subject to the laws of both countries involved. Such laws are generally aimed at curbing terrorism, organized crime, and money laundering. These legal requirements can be complex, however, making it tricky to understand what foreign charities you are—and are not—permitted to support with your dollars.

 

Tax Deductions

If you want a tax deduction for your charitable contribution, you’ll have to give to a U.S.-based 501(c)(3) nonprofit organization. To determine whether a charity you wish to support qualifies to receive tax-deductible donations, you can search the IRS’s tax-exempt organization database.

 

Legal, Tax-Deductible International Giving

Donations to foreign charities do not qualify for U.S. federal tax deductions, but that doesn’t mean you can’t get a tax deduction when you support overseas causes. There are a number of ways to legally claim tax deductions for donations that end up outside the U.S.

 

U.S.-Based Organizations That Work Internationally

Many U.S.-based nonprofit organizations work across national borders. For example, the International Center for Research on Women seeks to advance the rights of women and girls internationally, and Americares provides health-focused relief to people around the globe who are affected by poverty and disaster.

 

International Organizations with Branches in the U.S.

There are a large number of international organizations that have established 501(c)3 charities in the U.S. Prominent examples include the World Wildlife Fund, Doctors Without Borders, and UNICEF.

 

Private Foundations

Private foundations generally operate under section 501(c)3. These organizations handle the screening necessary to determine the legality of overseas donations, so you don’t have to. Well known examples of private foundations that make considerable overseas contributions include the Bill & Melinda Gates Foundation, the Ford Foundation and the William and Flora Hewlett Foundation.

 

Donor-Advised Funds

Donor-advised funds are typically operated by nonprofit arms of financial institutions. Like private foundations, donor-advised funds screen charities for legal compliance and fiscal responsibility. You can contribute a variety of asset types to a donor-advised fund, such as cash, equities (including restricted stock), life insurance, mutual fund shares, and even cryptocurrency.

 

2021 Charitable Deductions

The CARES Act changed the rules for tax-deductible donations in tax years 2020 and 2021. First, it allows an above-the-line deduction for cash contributions up to $300 per individual or $600 per jointly filing couple. More significantly, it allows those who itemize deductions to deduct up to 100% (previously 60%) of their adjusted gross income for cash donations to public charities. Excess contributions can be carried forward for up to five years, but the 100% deduction limit is set to expire after the 2021 tax year.

 

It’s important to note that these expanded deductions do not apply to contributions to private foundations or donor-advised funds. It also excludes most cash contributions to charitable remainder trusts.

 

The fiduciaries at WRP specialize in providing complete wealth management, including tax-efficient investment advice, tax planning and preparation, and advanced estate planning. For more insights, check out our blog!