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In civil law jurisdictions not all charitable organizations are tax exempt. Tax exemption is not automatically attributed to a charitable organization, each charity must apply specifically for tax exemption status if desired. Tax exemption may be attributed in full or in pre-categorised percentage levels. When charitable organizations have been established by companies within a tax planning strategy or by any other reason, those charities are usually legally bound in liability to the parent companies. Donations to charities in the United States are deductible for income tax purposes if the organization has exempt status from the Internal Revenue Service, usually under non-profit organization sec. 501(c)(3) of the tax code. Such organizations file a tax return by using IRS Form 990, which is monitored by watchdog groups like Charity Navigator to analyze their business practices. Any organization meeting the rules of section 501(c)(3) can be classified a charity in the US, including trusts, foundations and corporations.
In the United Kingdom, Gift Aid is a scheme to enable tax-effective giving by individuals and companies to UK charities. In outline, Gift Aid allows individuals who are subject to UK income tax to complete a simple, short declaration that they are a UK taxpayer. Any cash donations that the taxpayer makes to the charity are then treated as being made after deduction of income tax at the basic rate (22% in 2006/7), and the charity can reclaim the basic rate income tax paid on the gift, adding approximately 28 per cent to the value of the gift. A taxpayer may receive a deduction from their income taxes equal to the amount of charitable contributions to tax-exempt charitable organizations. However, the taxpayer must have made such contributions that in the aggregate exceed $100. The taxpayer may not receive a deduction in an amount that exceeds 25% of their total income. |