Clarifying Tax Deductions for Donors
Our Ask An Expert series features real questions answered by Claire Axelrad, J.D., CFRE, our very own Fundraising Coach, also known as Charity Clairity.
Today’s question comes from a fundraiser who isn’t sure if payment processing fees are deductible by the donor.
Dear Charity Clairity,
I sometimes get asked about the extent of the deductibility of donations that their donors make. Some believe that when a donor opts to cover the processing fees, that only the base donation is deductible. I know the full amount is deductible, but I have yet to find a meaningful source to cite on this. Would you be willing to provide your insight?
You are correct. The full amount is deductible. The processing fee covers a piece of your overhead. It’s quite likely some of the rest of the donation covers portions of overhead as well. You just don’t choose to itemize this for the donor. You could, but it would likely be perceived as weird.
“Thank you for your gift of $100 which will be used as follows:
- $77 food for distribution
- $9 Staff salaries
- $8 Administrative overhead (insurance, occupancy, utilities, technology, transportation)
- $6 (fundraising/marketing expenses)”
That would be expected by a foundation or government entity. It’s not only not expected by individual donors, it would also likely be de-motivating to the donor (although some folks might appreciate your transparency).
Regardless, ALL of the donor’s gift – whether you use it for overhead or direct service – is deductible (by a donor who itemizes deductions) — unless they receive more than a de minimus benefit in exchange. The IRS describes de minimus as
A donor who gives to cover your processing fees receives no benefit from the additional fee. They’re simply making a gift that incorporates one of your ‘cost of doing business’ expenses. Deductibility is based on giving (for which nothing is given in return), not on how the charity uses the gift.
By suggesting to donors that they give more to cover your processing fees, you’re merely adding a specific element to your case for support. That is, you’re suggesting the donor restrict a portion of their gift to cover your fees. If they agree to give you more, you should thank them for the full value of what they gave to you. Whether a donor’s gift is restricted or unrestricted, it’s all deductible.
I hope this helps,
— Charity Clairity