If you’re in the process of filing your taxes, you’re probably racking your brain for any possible deductions.
Many of us participate in nonprofit raffles throughout the year. If you’ve purchased raffle tickets for a charitable organization, you might be wondering if you can deduct the cost of the tickets from your tax returns.
We have the answer to this much-asked question, plus more information on the intricacies of charitable donations and tax deductions, so read on!
The Argument For Tax Deductible Raffle Tickets
The reason why many taxpayers assume that nonprofit raffle tickets must be tax-deductible is that charitable donations to verified organizations can be deducted from your tax returns.
Raffle participants who did not win a raffle prize often consider the cost of the tickets to have been a charitable contribution. If the purchase of the tickets can be considered a donation, then it would seem to make sense for the cost to be tax-deductible.
However, as we’ll go on to explain, it doesn’t quite work like that. Although the cost of the ticket(s) does technically constitute a financial contribution, the set of circumstances surrounding the purchase sets this contribution apart from other nonprofit donations.
Why Aren’t Raffle Tickets Tax Deductible?
There are some qualifying factors that distinguish a tax-deductible charitable donation from those that can’t be deducted, which we’ll cover in more detail in our next section.
However, the answer to why raffle tickets are not tax-deductible is quite simple: the purchase of a raffle ticket is not considered a charitable donation.
This might sound nonsensical on the surface. After all, if you’ve purchased a raffle ticket and not won a prize, you’ve contributed financially to a nonprofit organization and received nothing in return. Surely, that counts as a charitable contribution?
Well, not exactly. Actually, in the eyes of the IRS, purchasing raffle tickets is more akin to gambling than charitable giving. That’s because you’re hoping or expecting to receive some kind of economic benefit in exchange for the purchase of your ticket(s).
Therefore, any financial losses incurred through participation in a raffle are considered gambling losses as opposed to a donation.
Now, there are some circumstances where you actually can claim a deduction for gambling losses when filing your taxes. However, in order to do so, you would need to have won at least the amount that you are claiming back.
For instance, if you spent $70 on raffle tickets overall, each costing $5, and won $200 on one ticket, you would have spent $65 on losing tickets. In this situation, although you’d have to file the $200 as income, you might be able to deduct the $65 as a gambling loss.
With that being said, these instances are unique and complex and may be handled differently depending on specific circumstances surrounding the situation.
For this reason, we strongly recommend that you consult a professional to avoid any confusion or misinterpretation before itemizing any gambling losses on your tax returns.
What Kinds of Charitable Donations are Tax Deductible?
So, if the cost of losing raffle tickets can’t be considered a charitable donation, then what kinds of nonprofit contributions can get you a tax deduction?
Firstly, it’s worth noting that while the price of raffle tickets can’t be deducted from your taxes, there are other nonprofit raffle contributions that might be tax-deductible.
For example, if you donate property to a nonprofit organization as a raffle prize, you might be able to claim the value of the property as a tax deduction.
However, the ability to deduct this sum from your taxes depends on the extent to which you have relinquished ownership of the property. In order for the property’s value to be tax-deductible, you need to have handed over the deed and rights to the property to the organization in question.
But there are other charitable donations you can make that will be tax-deductible and don’t involve you relinquishing ownership of any property.
Monetary donations to qualified charitable organizations that aren’t associated with the possibility of economic gain in return can be itemized as deductions on your tax form.
A qualified nonprofit organization is one that has received tax-exempt status as awarded by the IRS. The IRS has a search tool accessible through its website so you can check whether a specific nonprofit qualifies for tax-deductible contributions.
However, the donation must not amount to more than 50% of your gross income after adjustment in most cases. Donating to certain organizations, such as small, privately owned foundations, comes with a tighter deduction limitation of 30%.
As with claiming gambling losses on losing raffle tickets, we recommend consulting with a tax advisor before listing any charitable donations on your tax form.
This will help to ensure that you have fully understood the status of a charitable organization and any limitations the organization has on deductions from contributions. When it comes to filing your taxes, it’s always better to be safe than sorry.
In summary, the cost of non-winning raffle tickets is not tax-deductible in the majority of cases.
There may be some exceptions where the cost of losing tickets may be deducted from the income gained from a winning ticket, but this deduction would be classified as a gambling loss or a quid pro quo donation and should be filed with the assistance of a tax professional.
While buying raffle tickets might not get you a deduction on your taxes, there are other forms of charitable giving that can be tax-deductible.
As long as the nonprofit organization in question is qualified (meaning that the IRS has granted it tax-exempt status) and the donation does not come with the potential for economic gain for the giver, the amount of the donation may be tax-deductible.
However, this rule is only applicable as long as the sum of money donated does not exceed 50% (or 30% in some cases) of the giver’s adjusted gross income.
Property donations to nonprofits may also be eligible for deductions as long as the rights to the property have been signed over to the organization.