Giving money to a noble cause is something which in most countries will earn you a tax break of some kind. Obviously, there are differences in what the various governments of this world consider a noble cause and so the question is, how and to which extent is this tax break going to work out for you. We cannot touch on the various charity systems around the globe – however, for Americans in Germany the rules are as follows:
First of all, let’s look at the similarities. Under both the US and the German tax code a donation usually qualifies as
- a cash contribution (albeit in-kind contributions are possible)
- made to a qualifying organization
- during a calendar year.
Another similarity is the fact that one does not get a 1:1 deduction, offset or credit. Instead, there are certain limits within the deduction category under which the donation falls.
The main differences belong to the following areas:
- Qualifying organization: While in the US social and sports clubs would not qualify as charitable organization, sports clubs in Germany account for the largest share of charitable organizations. War veterans organizations, churches, synagogues, Red Cross… qualify in both countries.
- Membership fees: In the US one may be able to deduct membership fees or dues paid to a qualified organization. However, only the excess of membership fees over the benefits received are deductible. In Germany, membership fees are deductible as well – generally speaking. Certain organizations – especially sports clubs – do not qualify for membership fee deduction.
- Documentation: Under US tax law any contribution exceeding $250 requires a contemporaneous written acknowledgment for every such contribution from the qualifying organization. In Germany the limit is €300.
- Carry forward: US tax law will allow you to carry over contributions you can’t deduct in the current year. However, you may only be able to deduct the excess in each of the next 5 years until it is used up, but not beyond that. Under German tax law, non-deductible contributions can be carried forward as well, however, there is no time limit.
- Foreign ties: Generally speaking, the US tax code does not recognize foreign organizations as qualified for the deduction of your contribution. There are certain Canadian, Israeli, or Mexican charities which qualify for a deduction though, but the scope is obviously limited. German tax law does allow for contributions to any EU charity – given that the foreign organization meets the German requirements for a qualifying organization. Contributions to a non-German or non-EU entity are not deductible.
The key-take away here is that the charitable nature of contributions in most cases will not be an issue. What will prevent deductibility is the foreign nexus of the organization. So, for Americans in Germany in almost all cases any US contribution will not be tax-deductible, while for any German a US contribution cannot be used to lower a tax burden.
