Save tax with donations

A donation can not only support the work of a charitable organisation but also reduce the taxpayer's own tax burden. However, the charitable gesture should be the main focus. Therefore, it is important to know who receives the donation and what they do with the money.

The German Central Institute for Social Issues (DZI) provides guidance. This non-governmental organisation awards a donation seal to reputable organisations. To receive this, fundraising organisations must meet certain criteria. The DZI evaluates the use of donations, fundraising costs, and administrative expenses. Advertising and administrative expenses must not exceed a "reasonable level". An amount exceeding 35 percent of the total expenditure of a charitable organisation is no longer considered reasonable.

Once an organisation has received the donation seal, it may advertise this on its website and other publications. The DZI currently lists around 250 donation organisations, from A for "action medeor" to Z for "Zukunftsstiftung Entwicklungshilfe". If an organisation does not have the seal, it does not mean it is disreputable, as applicants must pay fees to the DZI each year for the voluntary "donation MOT".

In such cases, it is helpful to look at the annual report of the respective association. These figures generally provide more information about the use of funds than a promotional leaflet.

In addition to peace of mind, donors have the positive side effect of being able to reduce their tax burden, as donations can be deducted from tax as special expenses.

The amount donated in the assessment year 2023 is entered in the income tax return (main form). Until 2006, proof of donation was required for donations of 100 Euro or more. This proof limit was raised to 200 Euro on 1 January 2007. Donation organisations usually send the relevant proof to financial supporters unsolicited at the beginning of the following year. For donations under 200 Euro, the tax office requires the taxpayer to provide appropriate bank statements, such as a transfer receipt and a bank statement.

However, beware, the tax officer does not accept every donation and every membership fee as a special expense. For example, membership fees for a sports club cannot be deducted by the taxpayer. Contributions to carnival, local, animal breeding, or singing clubs are also not recognised by the tax office. However, if you belong to an association involved in nature, welfare, gender, animal, or monument protection, you may deduct both your donations and membership fees from your taxes.

In contrast to donations to charitable organisations, donations to political parties (or membership fees) receive a direct tax reduction of 50 percent, but no more than 825 Euro (single) or 1.650 Euro (married). Any amount exceeding this can also be claimed as special expenses. The maximum amount is 1.650 Euro for singles and 3.300 Euro for married couples.

Incidentally, in addition to monetary donations, donations in kind can also be claimed for tax purposes. If you wish to donate your old clothes to a charitable organisation, you will need a donation receipt from them, listing the market value and condition of the clothing items.

(2023): Save tax with donations

Donations for earthquake victims in Turkey and Syria

In February 2023, a devastating earthquake occurred in Turkey and Syria, leading to severe suffering and infrastructure damage. The Federal Ministry of Finance has taken measures to facilitate support without tax obstacles.

Simplified donation receipt: A disaster decree is in effect until 31 December 2023. Among other things, this decree allows for a simplified proof of donations. Instead of a standard donation receipt, a cash deposit slip or booking confirmation from a bank is sufficient (BMF letter dated 27.2.2023).

Other regulations concern measures by tax-privileged organisations helping those affected by the earthquake, the tax treatment of donations from business assets, payroll tax issues, and more.

(2023): Donations for earthquake victims in Turkey and Syria

What goodwill regulations apply to donations for refugees?

Refugees in Germany continue to seek protection from war and displacement. Thousands of dedicated citizens, companies, initiatives, and organisations continue to help the arriving refugees with personal and financial commitment to ensure their care and support.

To promote and support this societal commitment to refugee aid, the Federal Ministry of Finance introduced simplified tax regulations. They apply from 1 August 2015 to 31 December 2016 (BMF letter dated 22 September 2015).

The federal and state governments have now agreed to extend the tax relief for refugee aid beyond 2016 until 31 December 2021 (BMF letter dated 5 February 2019). Thus, as in 2016, the following regulations also apply in 2018 and 2019 onwards:

• For donations to special accounts of aid organisations to support refugees, the simplified proof of donation applies - without any limit on the amount. Proof can be, for example, a cash deposit slip, a bank statement, or a printout from online banking.
• Exceptionally, donations to private fundraisers for refugees are also eligible. Often, dedicated citizens set up donation accounts on special occasions, e.g. birthdays, weddings, christenings, funerals, anniversaries, and ask for donations instead of gifts.
• All charitable associations may collect donations for refugees, regardless of their actual statutory purposes. The special campaign must be indicated.
• All charitable associations may use their free financial resources to support refugees, even if refugee aid is not regulated in the statutes. The statutorily required amendment of the statutes is not necessary. However, it must be ensured that these funds are not provided by the donor with a different intended use.
• If employees waive parts of their wages or parts of an accumulated credit balance and the employer makes a payment to the donation account of a recognised aid organisation, this wage portion remains tax-free.

Currently, the BMF has issued discretionary regulations for supporters of Ukrainian refugees. This means that the tax authorities want to help supporters with various tax reliefs. Details are regulated in the BMF letter dated 17 March 2022 (IV C 4-S 2223/19/10003).

(2023): What goodwill regulations apply to donations for refugees?

What can I deduct as donations and membership fees?

You can claim tax deductions for donations and membership fees for the promotion of tax-privileged purposes. These include:

• Charitable purposes
• Benevolent purposes (e.g. workshops for the disabled, meal services or drug counselling centres)
• Church purposes
• Political parties
• Independent voters' associations
• Charitable associations and organisations
• Public institutions in Germany: e.g. universities, universities of applied sciences, research institutes, authorities, schools, state museums, state hospitals
• Legal entities under public law in Germany: e.g. city and municipal administrations, municipal associations, federal states and the federal government, as well as churches

However, donations for a club's commercial business operations are not deductible. For example, if you donate drinks for a club festival, you cannot enter this in your tax return.

To deduct donations from tax, they must be made without receiving anything in return. You can deduct not only cash donations. Donations in kind, expense donations and remuneration donations are also considered tax-relevant.

(2023): What can I deduct as donations and membership fees?

How much can I deduct for donations and membership fees?

Tax-privileged purposes include charitable, benevolent, and religious purposes, as well as, with certain conditions, the promotion of political parties and voter associations. Since 2007, previously specially promoted cultural and scientific purposes have been part of charitable purposes.

Donations for such privileged purposes are deductible as special expenses up to a total of 20% of the total amount of income. If donations exceed the maximum amount, the excess can be carried forward to the following year and considered within the maximum limit. This donation carryforward is unlimited in time.

As with donations, membership fees are generally deductible as special expenses within the deductible donation limit. However, this only applies to "altruistic" purposes and organisations that do not offer benefits to the members themselves, e.g. Caritas, Lebenshilfe, DLRG. Membership fees to clubs that promote leisure-related charitable purposes with "self-interest", e.g. sports clubs, music and choral societies, marching bands, theatre clubs, local heritage societies, traditional costume societies, carnival clubs, animal breeding and plant breeding clubs, model flying clubs, dog sports clubs, are not deductible.

In addition to monetary donations, you can also claim donations in kind for tax purposes. If you wish to donate your old clothes to a charitable organisation, you will need a donation receipt from them listing the market value and condition of the clothing items.

Your taxable gross income: 45.000 Euro, minus income-related expenses: 3.000 Euro, total income: 42.000 Euro

You can claim donations and membership fees of up to 8.400 Euro (20 percent of 42.000 Euro) as special expenses for tax purposes.

(2023): How much can I deduct for donations and membership fees?

What is a donations carryforward?

Donations and, if applicable, membership fees to promote tax-privileged purposes are deductible as special expenses up to a maximum of 20 per cent of the total income. If you make such contributions that exceed the maximum amount, the unconsidered amount will be carried forward to the following year and deducted there within the maximum limit. This is known as the donation carryforward. This donation carryforward is unlimited in time, meaning it continues until the previously donated amount is offset. You will receive an assessment notice from the tax office each year regarding the donation carryforward that has not yet been taken into account.

(2023): What is a donations carryforward?

How do I provide evidence of donations to the tax office?

Donations and membership fees were previously only recognised for tax reduction if the donation receipts and proof of membership fees paid were attached to the tax return or sent to the tax office after electronic submission. In certain cases, simplified proof, such as a bank statement, was sufficient.

Since 2017, the obligation to submit receipts has been changed to an obligation to retain receipts: Donation receipts or corresponding proof no longer need to be submitted with the tax return. Instead, they only need to be presented if requested by the tax office. This is possible up to one year after the tax assessment notice is issued. Therefore, the donor must keep the receipts for this period (§ 50 para. 8 EStDV 2017).

The new obligation to retain receipts applies to donations made from 1 January 2017. However, receiving a donation receipt is still a prerequisite for the donation deduction. Therefore, make sure you receive a receipt. But you no longer need to submit the receipt with the tax return, only upon request by the tax office.

The donor can authorise the donation recipient to electronically submit the donation receipt to their relevant tax office. For this, the donor must provide their identification number to the donation recipient. The authorisation can only be revoked with future effect. The donation recipient must provide the donor with the data transmitted in this way electronically or as a printout upon request. This offers the advantage for the donor of not having to keep or present a donation receipt in their own tax procedure. For the donation recipient, the obligation to keep a duplicate of the donation receipt would also be waived (§ 50 para. 2 EStDV).

A formal donation receipt in the official format is not always required. Proof such as a bank statement, cash deposit slip, transfer slip or direct debit slip is sufficient for

• Donations up to 300 Euro made to a charitable, benevolent, church or religious organisation or to a domestic legal entity under public law or a domestic public authority.
• Donations in disaster situations paid into a special account within a certain period. Such a special account may only be set up by officially recognised associations of independent welfare organisations and their member organisations, as well as a domestic legal entity under public law or a domestic public authority. The amount of these donations is not relevant.

(2023): How do I provide evidence of donations to the tax office?

What donations are not tax-deductible?

The tax officer does not accept every donation and membership fee as a special expense.

Here are some examples:

The judge orders the defendant to pay a fixed amount to a charitable organisation. The convicted person cannot, of course, deduct this "involuntary" donation from tax, as it is not voluntary and not without consideration.

Membership fees for sports clubs cannot be deducted by the taxpayer.

Contributions to carnival, local heritage, animal breeding or singing clubs are also not recognised by the tax office.

However, there is a new development: If you belong to a club that is involved in nature, welfare, gender, animal or monument protection, you may deduct both your donations and membership fees from tax.

Membership fees to clubs promoting the following purposes are not deductible: Sport, cultural activities for leisure purposes (e.g. singing, music, theatre clubs), local heritage and folklore, animal and plant breeding, allotments, traditional customs including carnival, soldiers' and reservists' support, amateur radio, model flying and dog sports.

Club A promotes science and research, while Club B also promotes sport according to its statutes. Donations and membership fees to Club A are deductible as special expenses, but for Club B only donations are deductible, not membership fees. The decisive factor is the entry of the club's purpose in the statutes, not the actual activities of the club.

The Federal Fiscal Court has recently ruled that membership fees to clubs primarily serving leisure activities cannot be deducted as special expenses in income tax. This also applies if, for example, a music club promotes another purpose in addition to "cultural activities for personal benefit", such as musical training, cultural and church music events, music festivals and music competitions (BFH ruling of 28.9.2022, X R 7/21).

(2023): What donations are not tax-deductible?

What is a donation and what are membership fees?

Donations are generally voluntary and unpaid.

A donation is free from any obligation to the organisation, which may pursue charitable purposes. The amount is determined by the donor. Donations can be made in the form of money, goods, and, to some extent, labour (time donations). In the latter case, only direct expenses such as necessary travel costs are deductible.

Membership fees, on the other hand, are defined by the organisation and have a fixed amount. They are also paid regularly. As a rule, they can only be paid in money. If a member pays more than the membership fee to a tax-privileged organisation, the difference is considered a donation.

Membership fees to clubs with "leisure-related" charitable purposes are not deductible. The club may not issue a donation receipt for the fees. This applies to:

• Sports clubs
• Music clubs
• Choir clubs
• Local heritage clubs
• Customs clubs
• Animal breeding clubs
• Dog sports clubs
• Carnival clubs

The Federal Fiscal Court recently ruled that membership fees to clubs primarily serving leisure activities cannot be claimed as special expenses in income tax. This applies even if the club pursues other purposes alongside leisure activities, such as musical training or cultural events (BFH ruling of 28.9.2022, X R 7/21).

(2023): What is a donation and what are membership fees?

What are donations to the capital reserves of a foundation

If a donation is made to the capital reserves of a foundation, up to 1 million Euro can be deducted as special expenses in the year of the donation and the following nine years. The tax office issues a notice of assessment each year for the donation amount not yet taken into account.

The donation limit of 1 million Euro can only be claimed once within 10 years, but can be distributed as desired within this period. For larger donations, the amount of 1 million Euro can be treated as a foundation donation and the excess amount can be deducted as "normal" donations within the limit of 20% of the total income.

For jointly assessed spouses, a donation limit of 2 million Euro has applied since 2013. It is no longer necessary to prove which spouse made the donation and from which assets the donation was taken.

Since 2013, the increased special expense deduction of 1 million Euro only applies to donations "into the capital to be preserved" of a foundation. It must therefore be a "capital reserve donation".

The situation is different for consumable foundations for donations "into the consumable assets" of the foundation. These are tax-deductible only up to 20% of the total income or up to 4 per mille of the sum of sales and wages and salaries. Any remaining amount can be carried forward indefinitely, i.e. it is considered as special expenses each year up to 20% of the total income until it is used up.

(2023): What are donations to the capital reserves of a foundation