Charitable Donations: What You Need to Know to Avoid Tax Scams

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last updated 31 October 2023

With the rising number of natural and other disasters occurring around the world, you, like many others, may feel the need to donate. But do your research because not all organizations claiming to be charities are legitimate. Fake charities can appear real and be set up by scammers to steal your money. But that’s not all scammers may be after.

According to the IRS, scammers might also request personal information, which puts you at risk for identity theft. While the presence of these scams shouldn’t deter you from giving, it’s important to verify charitable organizations before you make a donation, especially in times of crisis.

"Knowing we're trying to aid those who are suffering, criminals crawl out of the woodwork to prey on those most vulnerable – people who simply want to help, " IRS Commissioner Danny Werfel stated in a release about charity scams. Werfel added that it's important to check out a charity first to confirm that it's authentic, saying, don't "feel pressured to immediately give to a charity you've never heard of."

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Fake charities: Spotting tax donation scams

It’s not always easy to spot fake charity scams. After all, scammers might “spoof” your caller ID to make it look like they represent a legitimate organization. Or they might set up fake websites that look authentic. But knowing what to look for can help protect you and your money.

For example, legitimate charities won’t ask you to provide gift card numbers or to wire your donation. Here are a few other things the IRS says can indicate a scam:

Requests for more information than required (for example, personal information such as your Social Security number)
Pressure to donate money immediately
You're unable to verify the charity’s name, address, and website based on your own research (More on that below.)

How to tell if a charity is legitimate

Using the IRS Tax-Exempt Organization Search (TEOS) tool allows you to research legitimate charities. You can find information about a charity’s tax-exempt status and filings and check to see if the charity is eligible for tax-deductible donations.

Since not all charitable contributions are eligible for a tax deduction, using the TEOS can be beneficial if you plan to itemize deductions, even when you trust the organization. However, it is important to note that just because a charity doesn’t qualify for tax-deductible contributions doesn’t mean it isn’t legitimate.

How to claim a charitable donation tax deduction

If you itemize deductions, you can claim qualified charitable contributions as a tax deduction on Schedule A of your federal Form 1040. However, as stated, not all charities are eligible for tax-deductible donations.

For example, donating money to an individual is not tax-deductible, even if the donation goes to a good cause, such as medical treatment or housing assistance. And even when the charity is eligible for tax-deductible contributions, there are special rules you must follow.

If you benefit from the donation (for example, if you receive a meal), you can deduct the difference between your donation and the fair market value (FMV) of what you receive. For example, if you donate $50, and the FMV of your meal is $25, you would only be eligible to claim a $25 deduction.
For non-cash donations (such as art), you must deduct the FMV of the donation at the time you make the contribution.
You cannot claim a deduction for volunteering your time or services. However, you can deduct costs related to volunteering (for example, transportation expenses).

Other limitations may apply to claiming tax deductions for charitable contributions. Because not everyone’s tax situation is the same, it’s wise to consult a tax professional when itemizing deductions.

Other common IRS scams to watch out for

Setting up fake charities isn’t the only way scammers try to trick taxpayers. For example, Kiplinger has reported on numerous tax scams this year, including art donation tax scams and IRS refund mail scams. Regardless of the type of scam, there are some common warning signs to watch out for. Here are a few:

Any email, text message, or social media message claiming to be from the IRS is a scam.
Scammers often use awkward wording, improper spelling, or poor grammar in texts and emails.
If an offer seems too good to be true, it probably is.

How to report a scam: The IRS urges anyone who receives correspondence from a fake charity (or one they suspect is fake) to visit the FBI’s Charity and Disaster Fraud webpage. If a taxpayer receives a suspicious tax-related email, they should forward the email to phishing@irs.gov.

Katelyn has more than 6 years’ experience working in tax and finance. While she specializes in tax content, Katelyn has also written for digital publications on topics including insurance, retirement and financial planning and has had financial advice commissioned by national print publications. She believes that knowledge is the key to success and enjoys helping others reach their goals by providing content that educates and informs.