Donations, party donations and tax-free volunteering

In December Ms Lorenz transfers 150 € to her municipality's animal shelter and waits until spring for a donation receipt that never arrives. In the same year she pays 1,200 € to her political party, and the church choir she leads on the side pays her 2,000 €. She thinks she needs three forms. In fact a bank statement is enough, the party donation cuts her tax directly by 600 €, and the choir fee stays tax-free.

What the law accepts as a donation

§ 10b(1) EStG groups donations and membership fees under the umbrella term Zuwendungen. They are deductible as special expenses (Sonderausgaben) when they further tax-privileged purposes within §§ 52 to 54 of the Fiscal Code, meaning charitable, benevolent or church purposes. The purpose alone is not enough; the recipient matters just as much.

The law names three groups of recipients. The first are legal persons under public law and public bodies located in the European Union or the EEA, for example a municipality, a university or a church with public-law status.

The second group are entities exempt from corporation tax under § 5(1) no. 9 KStG: the charitable association, the charitable limited company, the foundation. The third group are comparable bodies in another EU or EEA state that would be exempt if they earned German income.

For recipients outside Germany the law also requires that their state provides administrative assistance and help with recovering claims. If a public-law recipient pursues its purpose only abroad, a link to Germany is needed: either people resident in Germany benefit, or the activity can enhance the standing of the Federal Republic.

For membership fees, sentence 8 draws a firm line. Fees are not deductible when paid to bodies that promote sport, cultural activities mainly serving leisure, or local heritage and local history. Fees for the fitness club or the football club therefore remain private, even when the club is charitable.

Fees are also excluded for clubs whose purposes appear in § 52(2) sentence 1 no. 23 of the Fiscal Code. That list includes, among others, animal breeding, allotment gardening, carnival, amateur radio, model flying and dog sports. The key point: a donation to such a club remains deductible, only the membership fee does not.

Conversely, sentence 7 states that fees paid to bodies promoting art and culture are deductible even if members receive perks such as reduced admission. This does not apply where the cultural activity mainly serves leisure, as with an amateur theatre whose members perform themselves.

Goods can be donated as well. Under subsection 3 the gift of an asset counts as a donation, but expressly not the use of property or services. Lending the club your car for a weekend or keeping its books free of charge is not a donation in the tax sense, however generous it may be.

How a gift in kind is valued depends on where it comes from. If the asset was taken straight out of business assets, the withdrawal value plus the VAT on the withdrawal applies. Otherwise the fair market value applies where a sale at that moment would not have been taxable, and in every other case at most the written-down cost.

A special form is the expense donation. Costs incurred for a qualifying recipient are deductible only if a claim to reimbursement was granted by contract or by the articles and the donor then waived it. The claim must not have been granted on condition of the waiver, otherwise it was never meant seriously.

Two ceilings, and what goes beyond them

Donations are not deductible without limit. The law sets two ceilings joined by an »or«: 20 percent of total income (Gesamtbetrag der Einkünfte) or four per mille of the sum of all turnover and the wages and salaries paid in the calendar year. What counts is the ceiling that allows the larger deduction in the individual case.

For most private individuals only the first ceiling matters. Someone with no turnover and no payroll has a base of zero for the second. The turnover ceiling is therefore in substance a tool for business owners whose profit is low in the year of the gift while their business volume is large.

Both ceilings apply to all subsection 1 donations together; the law says »in total«. Several gifts to different recipients are added up and measured against the ceiling once. Party donations do not go into this pot; they follow their own route, described two sections further on.

What exceeds the ceilings is not lost. Sentence 9 provides a carry-forward: the excess is deducted as special expenses in the following assessment periods, each time within that year's ceilings. The text as read sets no time limit on this carry-forward.

Also carried forward is whatever exceeds total income after certain other items are deducted, namely pension and insurance contributions under § 10(3) and (4), the flat allowance for special expenses and any loss deduction under § 10d. A donation is not meant to fizzle out in a year in which there is no taxable income anyway.

The tax office issues a separate determination of the remaining carry-forward, applying § 10d(4) by analogy. That notice is the document to rely on in the following year; anyone who neither keeps nor checks it may give away a deduction that is already theirs.

For gifts into the capital stock of a foundation, the part meant to be preserved, subsection 1a allows an additional deduction. On application up to 1 million euros may be deducted, spread over the year of the gift and the following nine years; for spouses assessed jointly the amount doubles to 2 million euros.

This amount comes on top of the subsection 1 ceilings and relates to the whole ten-year period; within that period it can be used only once. Gifts into the consumable assets of a foundation do not qualify, and for them the general ceiling remains.

At the bottom end sits § 10c. For donations and some other special expenses the tax office deducts a flat 36 euros without any proof, twice that for joint assessment. Small donations therefore only make a difference once they, together with the other special expenses covered, exceed this flat amount.

Proof: official receipt or bank statement

The rules of evidence are not in the Act itself but in § 50 of the Income Tax Implementing Ordinance (EStDV). As a rule a donation is deductible only if the donor has received a donation receipt issued by the recipient on the officially prescribed template. The rule covers § 10b and § 34g alike.

The paper can be replaced by a data record. The donor may authorise the recipient to send the receipt electronically to the donor's tax office and gives it his tax identification number for that purpose. The recipient then makes the transmitted data available to him. The authorisation can only be revoked for the future.

Subsection 4 holds the relief that matters most in practice. Instead of a receipt, a cash deposit slip or a bank's booking confirmation is enough where the individual donation does not exceed 300 euros. This only applies to certain recipients, and sometimes only if the recipient supplies its own voucher carrying prescribed details.

• The recipient is a German legal person under public law or a German public body: the bank or deposit slip is enough on its own.
• The recipient is a tax-exempt entity: its own voucher must show the privileged purpose, the details of its exemption and whether the payment is a donation or a membership fee; the donor keeps this voucher as well.
• The recipient is a political party not excluded from partial state funding: for donations, the purpose must be printed on the party's voucher.
• Disaster relief paid into a dedicated special account within the period set by the tax authorities: here the relief applies with no amount limit.

The booking confirmation must itself show certain details: name and account number or another identifier of both payer and payee, the amount, the booking date and the fact that the payment was actually carried out. A bank statement or an online-banking printout normally meets all of these.

For membership fees paid to political parties, subsection 6 is even more generous: deposit slips, booking confirmations or fee receipts replace the official receipt, with no amount limit. For donations to parties, the 300-euro limit and the printed purpose still apply.

The documents are submitted only when the tax office asks for them. Anyone not asked keeps them until one year after the tax assessment has been notified. So the amounts go into the return, the vouchers stay in the folder, and they must remain easy to find there.

Subsection 4 of § 10b protects the donor acting in good faith. He may rely on the receipt being correct unless he obtained it by improper means or false statements, or knew it was wrong, or failed to know through gross negligence. If a receipt later turns out to be wrong, the good-faith donor keeps the deduction.

The other side falls on the issuer. Whoever intentionally or with gross negligence issues an incorrect receipt, or causes donations not to be used for the confirmed purposes, is liable for the lost tax. The law sets that tax at a flat 30 percent of the amount donated.

Party donations: the tax reduction first, then the deduction

The law treats gifts to political parties in two stages. The first stage is § 34g: it reduces not income but the income tax under the tariff itself, by 50 percent of the payments. A donation of 1,000 euros therefore saves 500 euros of tax, whatever the personal tax rate.

The reduction is capped at 1,650 euros, or 3,300 euros for joint assessment. At a rate of 50 percent the cap is reached with payments of 3,300 euros, or 6,600 euros for spouses. Membership fees and donations benefit alike.

Besides parties, § 34g covers voters' associations, clubs without party status aiming solely to take part in federal, state or local elections with their own candidates. They carry a separate cap of the same size; the law says »each«. The club must have won a seat at the last election or have registered to stand at the next one.

The second stage is § 10b(2). Party donations are deductible as special expenses up to 3,300 euros, or 6,600 euros for joint assessment, per calendar year, but only in so far as no § 34g reduction has been granted for them. The same euro never works twice.

This fixes the order. A single person's first 3,300 euros go into the reduction, the next 3,300 euros into the special-expense deduction. Anything beyond has no effect; subsection 2 has no carry-forward like charitable donations do, and party donations do not move into the 20 percent pot either.

Both stages require that the party is not excluded from partial state funding under § 18(7) of the Political Parties Act. A donation to an excluded party has no tax effect at all, neither reduction nor deduction. Proof follows § 50 EStDV as for charitable donations, with the reliefs of the previous section.

Instructors and volunteers: income that stays tax-free

People who get involved often do not give but receive: an expense allowance, a fee, a flat payment. § 3 EStG exempts part of such income, through two provisions of different breadth that practice calls the instructor allowance (Übungsleiterpauschale) and the volunteer allowance (Ehrenamtspauschale).

The instructor allowance of no. 26 covers side activities as trainer, instructor, educator, carer or in a comparable role, plus artistic side activities and the part-time care of elderly, sick or disabled people. Income from them is tax-free up to 3,300 euros a year.

Two conditions apply on top. The activity must further charitable, benevolent or church purposes, and it must be carried out for or on behalf of a public-law legal person in the EU, the EEA or Switzerland, or a tax-exempt entity. A coach at a charitable sports club qualifies; a coach at a commercial gym does not.

The volunteer allowance of no. 26a is broader and smaller. It requires no particular kind of activity, so the treasurer, the groundskeeper or a board member may qualify. Purpose and principal must meet the same conditions as under no. 26, but only up to 960 euros a year stays tax-free.

Both amounts are annual and apply »in total«, per person rather than per club or per activity. Someone coaching at two clubs has 3,300 euros tax-free in total. The text as read does not define »side activity« (nebenberuflich); a full-time job as a coach, however, visibly falls outside it.

No. 26a sentence 2 bars stacking: the volunteer allowance is excluded where the income from the activity already benefits, wholly or partly, from an exemption under no. 12, 26 or 26b. The exclusion is tied to the income of the individual activity; for a separate second activity the other allowance remains available.

If income exceeds the allowance, expenses directly linked to the activity may be deducted only in so far as they exceed the tax-free amount. An instructor receiving 4,000 euros with 500 euros of travel costs pays tax on 700 euros of income, and the travel costs have no effect because they stay below 3,300 euros.

Both allowances connect with the donation rules. If an instructor waives a fee promised by contract, that can be an expense donation under § 10b(3), subject to the same strict conditions described above.