One of the benefits of making charitable contributions to a cause or organization that you support is the fact that you can tax a federal income tax deduction for that charitable contribution. Of course, with everything involving taxes, there are a lot of very particular rules that you need to know and a number of different regulations that you need to follow. Here are some of the most important of those tax rules regarding charitable contributions made by businesses.

1. Know the difference between "tax exempt" and "tax deductible."

Think that tax exempt and tax deductible mean the same thing? Well, think again before you donate to the first tax exempt organization that comes knocking on your door.

"Tax exempt" status means that an organization is not required to pay income taxes. Making a contribution to particular tax exempt organizations can end up being deductible from you, the donor's, federal income tax return. There are over twenty different tax exempt organization categories defined by the IRS. However, only a few of those organization categories can be tax deductible for the donor.

How do you find out if an organization is tax exempt AND tax deductible?

1. You can call up your local IRS office and ask them.


2. You can ask the organization itself for a copy of its Letter of Determination.
   
   • A Letter of Determination is basically the paper form of the IRS' approval of an organization's tax exempt status.
3. Know the classification of the different organizations.
   Generally speaking, there are four broad categories of tax exempt organizations: 501(c)(3), 501(c)(4), 501(c)(6), and 501(c)(19).
4. Check out IRS Publication 78. This publication is a Cumulative List of Organizations, a listing of all tax exempt organizations to whom contributions are also tax deductible under IRS section 170.

Organizations that fall under this category are : charitable organizations, religious, scientific, educational, preventing cruelty to animals or children, literary, amateur sports competition on a national or international level, and testing for public safety.

Any contribution made to an organization that is classified as 501(c)(3) is tax deductible on your federal income tax return.

However, the foundation status of the organization is what will determine how much you can deduct from your own tax return.

There are three main foundation status classifications of 501(c)(3) organizations:

1. A public charity as opposed to a private foundation. These organizations receive a major part of their income from either the government or the general public. The support has to be provided by a large number of people, so that it's not just a wealthy family setting up a "public charity". For more information see IRS Code 509(a)(1) to 509(a)(4).
2. A private foundation, also called a non-operating foundation. These organizations receive the majority of income from endowments and investments. Then the income is given to other organizations that are engaged in various charitable activities. See IRS Code 509(a).
3. A private operating foundation. These groups are the ones that the private foundations listed above give grants to. Private operating foundations, as defined in the IRS Code 4942(j)(3) are ones that use their earnings and income to fulfill their tax exempt purposes.

Deductibility limitations

The limits on how much you can deduct are as follows:

Corporations are allowed to deduct contributions to any 501(c)(3) organizations up to amount that is equal to 10% of the corporation's taxable income.

One last tip: Make sure that you get a receipt, or else you can't count your contribution!