Political Campaigns: Taxing Contribution Woes

Political campaigns are an expensive affair, with millions or even billions of dollars being raised through personal and business donations. This money is used to pay for travel, administration, salaries, and other campaign-related expenses. However, the question of whether these contributions are subject to taxation is a complex one. In the United States, political contributions, whether to candidates, parties, or PACs, are not usually tax-deductible. This includes monetary donations, in-kind contributions, and volunteer expenses. While charitable donations are generally eligible for tax deductions, the same does not apply to political donations. This is because political organizations are subject to taxation under Section 527 of the Internal Revenue Code, and any income, including contributions, is taxable unless specifically exempted.

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Political donations are not tax-deductible

While charitable donations are generally tax-deductible, any donations made to political organisations or political candidates are not. This is because political organisations are taxed under IRC section 527 of the Internal Revenue Code. Qualified nonprofit organisations, such as the American Red Cross, United Way, Girl Scouts of America, and Boy Scouts of America, are tax-deductible. However, nonprofit advocacy groups, such as the American Civil Liberties Union and the Sierra Club, have a 501(c)(4) designation and cannot receive tax-deductible donations because they may engage in political activity.

If you are unsure whether the organisation you are thinking of donating to qualifies or not, the IRS provides a Tax-Exempt Organisation Search Tool that you can use. Websites like Charity Navigator can also help you search for charities, or you can use the IRS website to check if a specific organisation has charitable tax-exempt status.

Political organisations are taxed under IRC section 527

Political organisations are subject to tax under IRC section 527. This includes political parties, campaign committees for candidates for federal, state, or local office, and political action committees (PACs). These organisations are required to file periodic reports with the IRS, such as Form 8872, "Political Organization Report of Contributions & Expenditures".

Under IRC section 527, a tax is imposed on the taxable income of political organisations for each taxable year. This taxable income includes exempt function income, which is income set aside for the organisation's exempt function and can include contributions, membership dues, fees, or proceeds from fundraising events or the sale of political campaign materials.

To be treated as a political organisation under IRC section 527, organisations must notify the Secretary that they are section 527 organisations and must electronically file Form 8871, providing their employer identification number (EIN).

It is important to note that contributions to political organisations or candidates are not considered charitable donations and are not tax-deductible. This includes monetary donations, in-kind contributions, and volunteer expenses.

Campaign contributions are not charitable donations

Political campaigns are not tax-exempt. All political organizations are subject to taxation under section 527 of the Internal Revenue Code. This means that political campaigns are required to pay taxes on their income, including contributions.

Campaign contributions are not considered charitable donations and, therefore, cannot be used to claim a tax deduction. This applies to both monetary donations and in-kind contributions, as well as volunteer expenses. In other words, anything spent out-of-pocket on a political campaign, including time and effort, is not a tax-deductible expense.

It is important to note that this applies to donations made to political organizations, political candidates, political action committees (PACs), or any group that seeks to influence legislation. These contributions are not tax-deductible, regardless of whether they are made in the form of money or as in-kind donations.

While charitable donations to qualified nonprofit organizations are generally tax-deductible, the same does not apply to political contributions. This distinction is important for donors to understand, as it can impact their financial decisions and tax obligations.

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Candidates must keep records of where money comes from and how it's spent

Political campaigns can raise millions, and even billions, of dollars through personal and business donations. This money can be used to pay for travel, administration, salaries, and any other campaign-related expenses. However, candidates must keep diligent records of where the money comes from and how it is spent. This is because, while political campaigns are subject to taxation, donations made to them are not tax-deductible.

The Federal Election Commission and the Internal Revenue Service (IRS) have guidelines in place for how money can be spent after a campaign concludes. Candidates are prohibited from using campaign funds for personal use. Permitted uses include charitable donations, donations to other candidates, and saving it for a future campaign. If a candidate drops out of the race or loses the primary, they must refund general election contributions to individual donors within 60 days. They may also choose to refund contributions for moral or ethical reasons or for legal purposes if a donor has exceeded the maximum allowable contribution.

Candidates must be transparent about where their money comes from and how it is spent. Nonprofit, non-governmental grassroots organizations like the Center for Responsive Politics, Consumer Watchdog, and Common Cause track how money is raised and spent. Additionally, the federal campaign database provides information on campaign spending, although it does not include state and local campaign spending.

It is important to note that there are different rules and limits on contributions for races for non-federal offices, as these are governed by state and local law. Some states have stricter limits on contributions, while others have no limits at all.

Political organisations must have their own EIN

Political organisations are subject to taxation under Section 527 of the Internal Revenue Code. They must pay taxes on income from investments or income from a trade or business, such as renting office space to an unrelated organisation. This income is referred to as "exempt function income" and includes contributions, membership dues, fees, and proceeds from fundraising events or the sale of campaign materials. To meet their tax obligations, political organisations must obtain an Employer Identification Number (EIN) and file periodic reports on Form 8872 with the IRS.

An EIN, or Employer Identification Number, is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to businesses operating in the United States for tax filing and reporting purposes. It is used to identify a business entity and helps the IRS track its tax obligations and filings. Having an EIN is essential for a political organisation to maintain its tax-exempt status and stay compliant with IRS regulations.

By obtaining an EIN, a political organisation can open a business bank account, hire employees, and establish credibility with partners and donors. It enables the organisation to separate its finances from those of its individual members, protecting their personal assets and liabilities. Additionally, having an EIN simplifies tax reporting and compliance for the organisation. With this number, they can file tax returns, make payments, and receive tax exemptions or deductions they may be eligible for.

To obtain an EIN, a political organisation must complete the appropriate application process through the IRS. The specific requirements and forms may vary depending on the organisation's structure and location. However, it typically involves providing information such as the organisation's name, address, and the responsible party's name and Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). Once approved, the IRS assigns the EIN, which remains associated with the organisation for its lifetime.

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