What you need to know if you file taxes in the USA
Many Indians that live in the USA still have strong ties to India, especially when it comes to giving. It is not uncommon for Indian-origin Americans or Indians living in the USA to prefer doing their giving back in India, often in a village where they or their family may have originated. It isn’t hard to understand why Indians would prefer to exercise their charitable instincts in India instead of in the USA. Even the poorest of the poor in the USA are often better off than their counterparts in India.
But make sure you are getting the most out of your tax deductions for your charitable work. Know that on a US tax return, money donated in India directly will not be deductible in most cases. There are a few exceptions to donating in foreign countries and they apply--guess where? Not in India but in close neighbours like Canada and Mexico (and also Israel, which is not close geographically but for some reason has special rules).
However, if there is a US office set up for the charity (that of course qualifies under the US IRS 501 (c) (3) rules), the money can be donated in the USA and funnelled back to India, creating a deduction and still getting the money to India.
InvestmentYogi supports a Hyderabad-based organization called Svechha, which recently obtained IRS 501 (c) (3) status in the USA, under the name of “Wings Of freedom”. Apart from slum children, they are sponsoring children from child labour rescue homes and other orphans. Now with the USA and India Charitable giving status, people can donate and receive tax deductions in India and/or the USA depending on the place of donation and their tax home.
The exact rules that apply as per the IRS are “You can deduct contributions to a U.S. organization that transfers funds to a charitable foreign organization if the U.S. organization controls the use of the funds by the foreign organization, or if the foreign organization is just an administrative arm of the U.S. Organization.” Not all organizations with an office in the USA will qualify so be careful where you give your money if you wish to benefit from the deduction.
Donations under 250$ do not require receipts be held by the donee which provides more flexibility, although in principal those donations are also governed by the same rules. It is required to keep a bank account statement showing the contribution, a credit card statement or a cancelled check, no matter how small the donation. Donations for more than $250 require further proof, for which a receipt usually fulfills the obligations.
If you are donating anything other than money, e.g. stock, goods, other investments or real estate, be aware that the rules are totally different and fairly complex—in these cases you will want to be a meticulous reader and interpreter of the IRS rules or take professional help in the form of an accountant’s advice.
If a charitable trust is in order for large amounts, get a lawyer specialized in that area and make it happen. Be aware of the benefits that may be available and don’t throw away good deductions. Just think, if you get to keep more of your money, there is that much more available for giving back to society.