Indian Americans: Make your India charity donations tax effective

If you want to make a donation to an Indian cause and also get a tax deduction in your US tax return, theres a simple way to do it.

Today, economic and social change in India is significantly driven by non government organizations (NGOs) and other charitable organizations. As an Indian American, if you want to contribute to that change, there are some things you must know about making donations to charitable organizations and getting a tax deduction for US tax purposes.

Eligibility

"A charity must be registered with the Internal Revenue Service (IRS) to be eligible for deductions on contributions. Just because a charity is registered in India, it does not make it exempt for US tax purposes," says Vinay Navani, a CPA and Shareholder at New Jersey based firm Wilkin & Guttenplan, PC.
What this means is that if you donate to an Indian charity directly, you will not be able to avail of a tax deduction on your US tax return. If you have significant income within India and you pay taxes in India, such a donation can get you a tax break in your Indian tax return under section 80G but not on your US tax return.

If you want to make a donation to an Indian cause and also get a tax deduction in your US tax return, there's a simple way to do it."There are several US registered charities that operate in India. You can contribute to them and get a tax break on your US tax return," Navani explains.

Some of these charities include India Development and Relief Fund (idrf.org), Pratham USA (prathamusa.org), Asha for Education (ashanet.org), Seva Foundation (seva.org), Sankara Eye Foundation USA (giftofvision.org), Association for India's development (aidindia.org), American India Foundation (aif.org). These are all registered with the IRS and channel their funds to causes in India.

You can find more charities here. You can also get their IRS registration status here.

Deduction

Charitable contributions are deductible on your US tax return only if you itemize your deductions on Form 1040 schedule A.

For a contribution of cash, check, or other monetary gift (regardless of amount), you must maintain a record of the contribution either by way of a bank record or a written communication from the qualified organization. If you donated gifts in kind, you generally can deduct the fair market value of the property. For any contribution of $250 or more (including contributions of cash or property), you must get a written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property contributed.

You must fill out Form 8283, and attach it to your return, if your deduction for a noncash contribution is more than $500. If you claim a deduction for a contribution of noncash property worth $5,000 or less, you must fill out Form 8283, Section A. If you claim a deduction for a contribution of noncash property worth more than $5,000, you will need a qualified appraisal of the noncash property and must fill out Form 8283, Section B. If you claim a deduction for a contribution of noncash property worth more than $500,000, you also will need to attach the qualified appraisal to your return.

Limits

For all public charities, the deduction is limited to 50% of your adjusted gross income. This limit applies to the total of all charitable contributions made during the year. To all other organizations, the deduction is limited to 30% of adjusted gross income.

Want to support another cause?

If you would like to support a specific cause such as making donations to a temple in your town or supporting a particular school in your village, there might not always be a public charity that supports the same. In such cases, you can set up your own charity in the US that will support a specific cause in India. More about this in the next piece.

Indian-Americans: Start your own charity to support a cause in India

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