Tax Refund on Donations — How to Make the Most of It?

Why It Matters — And Who Is This Guide For?

If you donate to an association, school, hospital, or other social organization, you have the right to a deduction in income tax. This is not something granted to you automatically — you need to know how to claim it properly.

This guide is intended for self-employed individuals seeking to reduce taxable profit, employees who want to claim a refund in their annual tax return, and company owners who plan donations as part of their accounting strategy. If you are also new immigrants or foreign residents — there are important details here for you as well.

In short, a donation is not just a charitable act. It is a legal tax tool that is important to understand.

What is Donation Deduction and Who is it Relevant to?

Donation deduction is a legal right to reduce taxable profit by the amount of money you have donated to recognized institutions. This does not mean the donation comes back to you as 100% — rather, it reduces the income on which you pay tax.

Practical example: A self-employed person who earned 200,000 shekels in a year and donated 10,000 shekels to a recognized nonprofit. The taxable profit will be 190,000 shekels, not 200,000. This is significant when you are in a high tax bracket.

Who can use this?

• Self-employed persons and business owners — donation reduces profit in the annual report.
• Employees — if you made donations in a given year, you can claim a tax refund in an annual report (if you have excess deductions or if the deduction was not made from your payslip).
• Private limited companies — donation is an expense that can be deducted from company profit.
• Nonprofit organization managers — nonprofits can also donate and benefit from the deduction.

However, there are conditions. Not every donation counts. The institution you donate to must be recognized by the tax authorities as a "cultural, religious, educational, scientific institution or institution for the relief of the needy." This is the first matter you need to verify.

How to Properly Leverage Donation Tax Deductions — Step by Step

The process itself is not complicated, but there are things you need to do precisely:

1. Verify that the institution is recognized by the Tax Authority. Before donating, check the list of recognized institutions on the Tax Authority website (or with the help of an accountant). If the institution is not on the list, the deduction will not be accepted.
2. Keep a receipt or donation confirmation. Every donation must be documented. A receipt from the institution is mandatory. If you donated via bank transfer, keep a copy of the transfer. If by check — keep a receipt from the payee.
3. Report in an annual report or advance payment report. Self-employed individuals report in the annual report form (a specific field for donations). Employees who want a refund report in the annual report in months 3–4 of the year following the reporting year. Companies report in an annual financial statement.
4. Keep all documents. The Tax Authority may request proof. Receipts, confirmations, bank transfers — everything must be kept for at least 6 years.

One point that is not always clear: if you are self-employed and donated in the last months of the year, you can deduct the donation in the annual report of that same year. There is no need to wait until the following year.

What You Need to Know About Tax and Donation Reporting

Donation deduction is not a "return" of all the money you donated. It is a deduction from taxable income. This means the tax savings depend on your tax rate.

Example: If you are in a 20% tax bracket, a donation of 10,000 shekels will save you approximately 2,000 shekels in tax. If you are in the 47% bracket (high-income earners), the same donation will save 4,700 shekels. That is a significant difference.

Main Reporting Obligations:

• Self-employed: Report in an annual report (Form 106 or digital report through the tax authority portal). The institution must be on the list of recognized organizations.
• Employees: If they have excess deductions or wish to claim a refund, report in the annual report in months 3–4 of the following year. If the deduction was made on the payslip, no additional report is required.
• Companies: Report in the annual financial statement under deductible expenses.

Deduction Limit: Subject to certain conditions, donation deductions may be limited. Self-employed individuals with low income, or cases where the donation is returned to the donor in any form (for example, a discount on the institution's services), may encounter issues. This is what needs to be checked on a case-by-case basis.

One more point: If you donate consistently year after year, the tax authority may ask questions if donations increase abnormally. This does not mean it is illegal, but it requires explanation. A certified accountant knows how to tailor this explanation.

Common Mistakes and How to Avoid Them

In years of working with clients, we see recurring mistakes. Here they are:

• Donation to an institution not on the recognized list. The most common mistake. You donate to an organization that appears legitimate, but it is not registered with the tax authority as a donation institution. The result: the deduction is rejected in your report. Always check first.
• No receipt or donation confirmation. You transferred funds by bank but did not keep proof. If the tax authority asks—you are in trouble. The receipt is essential.
• Incorrect reporting on the report form. Self-employed individuals reporting in the wrong field in the annual report, or employees who do not report at all because they thought it was "automatic." It is not automatic. You must report.
• Donation returned to the donor in any form. For example: You donate to a school and receive a discount on your children's tuition fees. That is not a deduction. It is a commercial transaction. The tax authority will view this as a "donation in return" and reject the deduction.
• Donation too large relative to income. If you are self-employed who earned 100,000 shekels and donated 90,000, it will raise suspicions. Not because it is illegal, but because it is unusual. The tax authority will request an explanation.
• Failure to keep records. The tax authority can request proof up to 6 years after. If you do not keep receipts—you are at risk.
• Donation in the company's name but reported under personal name. If the company donated, the deduction belongs to the company, not to you as the owner. A reporting error can result in a tax adjustment.

When Should You Consult an Accountant About Donations?

If you donate small amounts (up to a few thousand per year) and are certain the organization is on the recognized list, you can manage it yourself. However, there are cases where consulting is worthwhile:

• Large or consistent donations. If you donate tens of thousands per year, it's advisable to plan this with an accountant. There may be a better way to structure the donation (through a company, in installments, coordinated with tax advance payments).
• Donation that comes back to you as some benefit. A discount, service, or anything else. You need to clarify whether this affects the deduction.
• You are self-employed with variable income. If your income varies year to year, there may be a "good year" when it makes sense to donate more to reduce your taxes.
• You are an employee and unsure if you're entitled to a refund. Employees sometimes aren't aware they can claim a refund. An accountant can verify this.
• Tax authority inquiry. If the tax authority asks questions about your donations, it's advisable to work with an accountant to respond properly.
• New immigrants or foreign residents. If you've been in Israel less than 10 years or are still in the immigration process, there are special rules. You need to know them.

In short: if you have any doubt — it's better to consult. Consultation fees are typically much smaller than the mistakes you can avoid.

Practical Example — Charitable Deductions in Different Scenarios

Scenario 1: Self-Employed Individual Reporting

Dan is a self-employed consultant. In 2025, he earned 250,000 NIS. In months 10–11, he donated 15,000 NIS to a recognized educational organization. In his annual tax return for 2025, he reported a profit of 235,000 NIS (250,000 minus 15,000). This reduced his tax by approximately 7,050 NIS (assuming a tax rate of 47%). Dan kept the receipt from the organization and a copy of the bank transfer confirmation.

Scenario 2: Salaried Employee Claiming a Refund

Ronit is a salaried employee who earned 180,000 NIS in 2025. In months 1–3 of 2026, she files an annual tax return. In the return, she reports that she donated 8,000 NIS in 2025. No deduction was made from her payslip. She requests a refund of approximately 3,760 NIS (at a tax rate of 47%). She attaches a receipt from the institution.

Scenario 3: Limited Company Making a Donation

My Tech Ltd. earned 500,000 NIS in 2025. During the annual maintenance review, the company owners decided to donate 20,000 NIS to a recognized medical research institution. The donation was reported as an expense in the company's annual financial report. This reduced the company's taxable profit to 480,000 NIS.