Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Qualified Charitable Organization

What it is:

A qualified charitable organization is a charity to which donations are tax-deductible.

How it works (Example):

According to the IRS, only certain types of organizations can be qualified charitable organizations: 

  • Community chests, corporations, trusts, funds, or foundations devoted to religious, charitable, educational, scientific, or literary causes or to the prevention of cruelty to children or animals. Groups that foster amateur sports competition may also qualify.
  • War veterans' organizations.
  • Fraternal societies, orders, and associations operating under the lodge system.
  • Certain nonprofit cemetery organizations or corporations.
  • The federal, state, district, tribal, or territorial government or a subdivision of those governments.

Government organizations and churches do not have to apply for status as qualified charitable organizations; they automatically receive the status.

It is important to note that there is a difference between a tax-exempt organization and a qualified charity. A tax-exempt organization does not pay taxes (the IRS defines about two dozen types of tax-exempt organizations). However, unlike a qualified charitable organization, a tax-exempt organization does not have to have a "charitable purpose." For example, a  homeowners' association or a fraternal order of the police can be a tax-exempt organization but not necessarily a qualified charitable organization.

Why it Matters:

Qualified charitable organizations are the only organizations to which donations are tax-deductible. It is important to note that not every organization dedicated to philanthropic purposes will receive qualified charitable organization status, and therefore donations to those organizations may not be deductible even if they are tax-exempt organizations.