It’s my annual “Taxes from A to Z” series! For the series, I’ll focus on terms that you might see on your tax forms and statements but not necessarily in the headlines. If you’re wondering whether you can claim wardrobe expenses or whether to deduct a capital loss, this is one series you won’t want to miss.
C Is For Campaign Contributions.
This time of year, you’re probably being asked to contribute to a lot of political campaigns and political causes. Feel free to donate to whoever you want for whatever reasons you want but keep this important tax tip in mind: You cannot deduct contributions made to a political candidate, a campaign committee, or a newsletter fund on your federal income taxes.
And no, you can’t just skirt the rules by disguising a contribution as a promotion for business or other purposes: Advertisements in convention bulletins and admissions to dinners or programs that benefit a political party or political candidate aren’t deductible.
When it comes to spending money to lobby for causes, you’re out of luck there, too. You generally can’t deduct amounts paid or incurred for lobbying expenses, including amounts paid for research, preparation, planning, or coordination of those expenses. Lobbying would include efforts to influence legislation; participate or intervene in any political campaign for, or against, any candidate for public office; attempt to influence the general public, or segments of the public, about elections, legislative matters, or referendums; or communicate directly with covered executive branch officials in an attempt to influence the official actions or positions of those officials.
But what if you’re the candidate and not simply a supporter? Your options are limited there, too. You can’t deduct expenses to run for office, including registration fees, even if you’re running for reelection (that’s not the same as an unreimbursed job expense). And while you can generally deduct legal fees paid to defend charges related to your job, you can’t deduct legal fees connected to participation in a political campaign.
There is some good news for candidates: campaign contributions are not considered income for individual tax purposes unless they are used for personal purposes (which might rub the Federal Election Commission the wrong way and land you in hot water).
Contributions spent for campaign purposes or kept in a fund for use in future campaigns are not taxable but interest or other income earned on contributions are taxable and must be reported on federal form 1120-POL, U.S. Income Tax Return for Certain Political Organizations (downloads as a pdf). Campaign finance rules may require separate accounts or other bookkeeping: if you’re running for office, make sure that you’re familiar with both FEC and IRS rules.