Don't Mess With Taxes

Americans, and particularly the families who suffered incomprehensible loss in the horrific mass shooting at Pulse nightclub in Orlando, are still trying to cope with the tragedy.

Forty-nine families are struggling emotionally with the loss of their loved ones at the hand of a crazed and heavily (and legally) armed gunman.

Families of 53 more people who were wounded, some gravely, also are trying to cope with the effects of the deadliest mass shooting in modern U.S. history.

Help for affected families: Not only must these people work through the personal loss and pain, many also will face practical challenges.

Irrevocably changed lives go on. Bills must be paid. Plans for a dramatically altered future must be made. 

Family and friends will no doubt help the affected families meet their ongoing needs. But we're likely to also see some philanthropic efforts arise.

UPDATE, June 20: The OneOrlando fund has received $7 million in donations to help those affected by the deadly nightclub shooting. That money, according to Orlando Mayor Buddy Dyer, will be given directly to family members and survivors instead of being distributed through charities and nonprofit groups. The reason, he said, is because survivors of the attack and relatives need help immediately with expenses like rent and groceries. In addition, more than 300 GoFundMe campaigns have raised $6.2 million for the Pulse victims. 

Such legitimate assistance efforts are welcomed. But note the word legitimate.

Sadly, crooks take advantage of terrible situations, especially those events that generate a lot of publicity.

Watch out for tragedy-related scams: I expect some scum already are out in north central Florida collecting money they falsely contend will help the families pay medical and other costs.

Some of the efforts will show up on the many fundraising websites that fill the internet. Other criminal attempts to get your money for an ostensible good cause will come via a phone call, social media or email

Don't be fooled by any of them.

UPDATE, June 17: The Internal Revenue Service today issued a consumer alert warning of possible fake charity scams emerging in connection with the mass murders in Orlando. While the IRS so far has not received any reports of specific charity scams related to the Pulse shooting, the agency reminds us to be diligent in our expressions of support. The IRS announcement contains tips for charity donors to help us avoid these despicable -- my word; the IRS was more circumspect in its alert -- con artists. 

YouCaring.com offers tips on how to avoid crowdfunding scams. They include:

1. Use only well-known sites with a history of legitimate fundraisers.
2. Check out the site on known crowdfunding review sites such as CrowdsUnite.
3. Avoid giving money if solicited by phone or mass emails or letter-writing campaigns for which you cannot verify the organizer's identity.
4. Check out a charity or cause via the Better Business Bureau Give.org site for reports of fundraising scams.

Watch out for fake charities: The tax code is a good tool in weeding out scams from real charitable efforts. When a charity is legitimate, its organizers have no problem following all the tax rules to receive official tax-exempt status.

But remember that many crooks also know the tax law. And these reprehensible pretenders go to great lengths to create what looks like a real Internal Revenue Service approved nonprofit. 

Look out for these fake charity warning signs:

• You've never heard of the charity before, or it is well-known but you suspect the website, email or letter may be fake. A fake website may look almost identical to a legitimate charity site, changing only the details of where to send donations.
  The person collecting donations on behalf of the charity does not have any identification. Remember, even if they do have identification, it could be forged or meaningless.
• You are put under pressure or made to feel guilty or selfish if you don’t want to donate.
• You are asked to provide a cash donation. Or they accept checks, but want it made out to an individual rather than to the charity.
• You are not given a receipt. Or, they give you a receipt that does not have the charity’s details on it.

The Federal Trade Commission also has details on how to spot a charity scam, as well as tips for researching a charity.

When donations aren't deductible: While it's very low on your consideration list after a national tragedy, not every donation to help victims is tax deductible.

Among the rules for charitable giving is that itemized donations only can be claimed if they're made to organizations that receive 501(c)(3) tax-exempt status from the IRS. The Internal Revenue Code specifically disallows a tax deduction for gifts to individuals.

That means if you give to a fund created to help an individual, it might help that person and his or her family, but you get no tax benefit for your gift. It doesn't matter how valid, trustworthy and worthwhile the effort for the needy person(s).

If you still want to give to such an assistance effort and are satisfied that a fund created for the benefit of a single person (or his or her family) is worthwhile, great.

But, just to be sure, do not give money directly to the person soliciting your financial aid. Make sure that your gift goes into a bank account established for the folks who need it.

What the IRS says: Don't take just my word for it. IRS Publication 526 spells out the limits for nondeductible contributions. It says:

Contributions You Can't Deduct
There are some contributions you can't deduct and others you can deduct only in part.

You can't deduct as a charitable contribution:

1. A contribution to a specific individual,
2. A contribution to a nonqualified organization,
3. The part of a contribution from which you receive or expect to receive a benefit,
4. The value of your time or services
5. Your personal expenses,
6. A qualified charitable distribution from an individual retirement arrangement (IRA),
7. Appraisal fees,
8. Certain contributions to donor ­advised funds, or
9. Certain contributions of partial interests in property.

Detailed discussions of these items follow.

Contributions to Individuals
You can't deduct contributions to specific individuals, including the following.

• Contributions to fraternal societies made for the purpose of paying medical or burial expenses of members.
• Contributions to individuals who are needy or worthy. You can't deduct these contributions even if you make them to a qualified organization for the benefit of a specific person. But you can deduct a contribution to a qualified organization that helps needy or worthy individuals if you don't indicate that your contribution is for a specific person.
• Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses.
• Expenses you paid for another person who provided services to a qualified organization.

Let me repeat/paraphrase one of the IRS' guidelines in Pub. 526.

Even if you give to individuals who are needy or worthy, your gift is not tax deductible.

Similarly, you don't get a deduction even if your contribution is made to a qualified organization, but is designated for the benefit of a specific person.

Donations that are deductible: However, you can deduct charitable gifts to IRS-qualified organizations that help needy or worthy individuals in general.

So if you want to help a family in Orlando that needs immediate, direct financial help in the wake of the Pulse nightclub shooting and you find a legitimate, albeit not IRS registered group that will do that, give. Your help will be appreciated.

But if you also would like to get a tax deduction for a gift in connection with the attack, consider donating to IRS-approved 501(c)(3) organizations that, for example, help anyone and everyone who needs assistance paying medical bills.

You also might want to send a few dollars to groups that work to ensure lesbian, gay, bisexual, and transgender (LGBT) rights, such as the Human Rights Campaign, Gay & Lesbian Advocates & Defenders (GLAD) and Parents Families and Friends of Lesbians and Gays (PFLAG).

Or you can give to groups supporting efforts to prevent gun violence, such as the Brady Campaign, the Educational Fund to Stop Gun Violence and the Newtown Foundation.

And let's all hope that one day these groups will no longer need our donations.

You also might find these items of interest:

• Finding a charity to volunteer with on MLK Jr. Day 2016
• Uncommon charitable gifts still provide donors the typical tax deduction
• Charitable donation tax deduction rules apply on Giving Tuesday and year-round