What advisors and clients need to know about political donations

Whether it’s supporting a favorite candidate or political party, contributing to a nonprofit that works for a cause close to their hearts, or using an impact lens when building a portfolio, one thing has become increasingly important to investors.

A UBS study found that 51% of investors over 50 said the pandemic made them want to make more of a difference in the world. That number rose to 79% for investors under 50.

Meanwhile, the ways in which donors choose to give continue to expand, and the lines increasingly blur between public and private causes. The desire to give creates an opportunity for advisors to help their clients find the most effective ways to use their capital to drive change. In an election year, this often involves conversations about political donations.

From a tax perspective, contributions made directly to political candidates are not tax deductible, but there are some ways donors can use their money to indirectly support candidates or causes – and gain tax relief. in the process.

So far this year, outside groups have spent nearly $2 billion on political campaigns, according to OpenSecrets.orgmuch of which comes directly – or indirectly – from individual donors.

Here’s a look at several strategies clients can use to contribute to candidates and causes they care about.

Direct political contributions

It is important for clients to understand that donations to political parties, politicians, or political action committees are generally not federally tax deductible. Also, there are some important rules they need to know about these gifts.

Donations to candidates, political parties and traditional PACs

Federal limits on the amount an individual can pay directly to a politician or their party vary by recipient and are broken down as follows:

• Individual candidates or candidate committees: $2,900 each • Traditional Political Action Committees (PACs): $5,000 each • State, district and local party committees: $10,000 combined • National Party Committees: $36,500 • National party committee accounts: $109,500

Contribution limits are indexed to inflation, so these limits are likely to increase before the 2024 election season. Contributions are not tax deductible and are not subject to gift tax rules. There are also no deductions available for in-kind service donations or for the time you volunteer for a campaign or political committee.

Recipients must report all donations over $200 to the Federal Election Commission, and the donor’s name, address and amount will be publicly published in a searchable database on the FEC website.

Partnership small business clients can also make contributions through their business, but corporations are not permitted to make direct political contributions unless they have established a separate fund (SSF) to this end.

Minors are permitted to donate to political candidates, subject to the rules above, if they do so with their own money and of their own choosing. Adults cannot give money to minors specifically for the purpose of political donation.

Donations to Super PACs

So-called Super PACs are political action committees that may advertise or conduct other activities such as telephone banking or canvassing to support (or attack) a candidate, but Super PACs are not not allowed to give their funds to a candidate or to coordinate directly with him. candidate or campaign.

There is no limit to the amount of money that individuals or corporations can donate to Super PACs. Donations are not tax deductible or subject to gift tax rules.

Super PACs must also report any donations they receive over $200, but customers who wish to remain anonymous can keep their names off public records by donating through a corporation, LLC or d a 501(c)4 organization (see below). High-level Super PACs include the Senate Leadership Fund and Women vote!

Some PACs are “hybrid PACs,” meaning they act as both a traditional PAC and a Super PAC. Also known as Carey Committees, these organizations must maintain a separate bank account where they keep funds donated or used for their Super PAC activities.

State tax credits

Although political donations are not federal tax deductible, a few states offer tax relief for donors to political candidates or political action committees in the state where they file their taxes. Tax credits or state tax deductions for political contributions generally stem from a desire to stimulate political contributions from low-income taxpayers who might not otherwise make a political contribution.

The rules for these deductions vary by state:

• Arkansas, Ohio, Minnesota: Up to $50 credit for single filers and $100 for married couples filing jointly • Oregon: Up to $50 credit for single filers earning less than $75,000 and $100 for married couples filing jointly and earning less than $150,000 • Montana: Up to $100 deduction for single filers and $200 for married couples filing jointly. (Note that since this is a deduction and not a credit, taxpayers will need to itemize to claim it.)

Most states also have rules about how much individuals can contribute to political candidates and when recipients must publicly declare those contributions.

Indirect contributions with tax benefits

For clients who want to advance political goals and gain tax benefits in the process, there are more indirect ways to contribute to their cause that may have some tax benefits.