Many organizations may be referred to as “charities”, but there actually are five different types of organizations that are exempt from the federal income tax under section 501(c)(3) of the Internal Revenue Code. The first two categories generally are referred to as public charities; the third category generally is referred to as a supporting organization or quasi-public organization; the fourth consists of organizations that conduct tests for public safety; and the fifth is referred to as a “private charity,” a “private foundation,” “family foundation” or simply as a “foundation.”

Public charities generally consist of religious organizations, schools and colleges, hospitals and organizations that receive a substantial portion of their revenue from the general public. Supporting organizations and public safety organizations are generally treated in the manner as public charities for income tax deduction purposes. Private foundations, on the other hand, typically receive most – if not all – of their revenue from a small number of sources.

Under federal tax law, an individual may not offset his or her entire income in one tax year by utilizing the itemized deduction for charitable contributions. Instead, the charitable deduction for a charitable contribution made during any one tax year is limited to a percentage of the individual’s contribution base (essentially, his or her adjusted gross income). The individual may carry forward any charitable contributions for the year in excess of the percentage limitation for up to five succeeding calendar years.

The percentage limitation for a charitable contribution depends upon the type of charity to which the contribution is made. With respect to the type or organization, gifts to private foundations generally are subject to stricter limits on their deductibility than gifts to public charities. This means that donors seeking to make large deductible contributions to a charitable organization may be less inclined to make the gift to a private foundation, as the value of the gift may not be fully deductible in the year in which the gift is made.

Federal tax laws impose another important limit on the amount of the deduction for a charitable contribution, which is based upon the type of property contributed. For gifts of money, the amount of the deduction is based upon the amount of money being transferred. For gifts of property other than money, the amount of the deduction is based upon how the sale proceeds would be taxed if the property were sold. The federal tax laws essentially recognize three categories of property: long term capital gain property, ordinary income property and short term capital gain property. Contributions of long term capital gain property generally are deductible up to the fair market value of that property, while contributions of ordinary income property and short term capital gain property generally are deductible only up to the donor’s basis in the property.

The following chart summarizes the different charitable deduction limitations applicable to gifts to public charities and private foundations.

	Contributions to Public Charities		Contributions to Private Foundations
Type of Contribution	Amount Deductible	Percentage Limitation	Amount Deductible	Percentage Limitation
Cash	Cost	50%	Cost	30%
Ordinary-income property, such as inventory, depreciable property, agricultural products, oil and gas property, Sec. 306 stock, collapsible corporation stock, original-issue discount debt instruments, market-discount bonds, artwork by its creator, and other property, the sale of which at fair market value would yield ordinary income	Cost	50%	Cost	30%
Short-term capital-gain property such as stocks, bonds and other capital assets, the sale of which at fair market value would yield short-term capital gain	Cost	50%	Cost	30%
Long-term capital-gain property, such as stocks, bonds and other capital assets, the sale of which at fair market value would yield long-term capital gain
A. General Rule	Fair market value	30%	Cost	20%
B. If election is made to reduce the amount of the deduction	Cost	50%	N/A
C. Qualified appreciated stock	N/A		Fair market	20%
Tangible personal property, if use of property by donee is unrelated to donee’s exempt purpose or function	Cost	50%	Cost	20%

As shown above, one generally can claim a larger deduction by making a contribution to a public charity than to a private foundation. However, private foundations can offer donors substantial benefits that in some cases will be more beneficial than making a gift to a public charity. For more information about this, please see Section V.