Tax deductions for charitable giving require documentation

How much did you donate to charity last year? Can you prove it?

In order to take all the charitable contributions you are due on your taxes each year, you must provide documentation of the amount donated and to which organization.

The rules vary based on the type of donation – cash, in-kind, property, securities, etc. – but one thing is the consistent: The gifts must be documented.

The following is a snapshot of what is required by the IRS for various types of donations:

  • Cash donations of less than $250

A bank record or written receipt from the charity showing the organization’s name, date and amount of contribution is sufficient documentation for gifts of cash less than $250.

  • Property contributions of less than $250

Property donations valued at less than $250 must be substantiated by one of two means:

1. A written receipt or letter from the charitable organization showing the organization’s name, the date and place of the contribution, and a detailed description of the property; or

2. If it is impractical to obtain a receipt, reliable written records with the following information:

  • The organization’s name, the date and place of the contribution, and a detailed description of the property;
  • The fair market value of the property at the time of the contribution and how the fair market value was calculated. A signed copy of an appraisal should be kept;
  • The property’s cost or basis;
  • The terms or conditions attached to the gift;
  • The amount of deduction claimed; and
  • For securities, the issuer’s name, the type of security, and whether it is regularly traded on a stock exchange or over-the-counter market.

 

  • Cash and property contributions of $250 or more

Donors must get a written acknowledgement from the charity if the value of the contribution – whether in cash or other property –  is $250 or more. A canceled check is not sufficient proof. If the gift is cash, the amount given should be noted on the acknowledgement. The acknowledgement of a gift of property must describe the property, but the charity does not have to value it.

The written acknowledgement also needs to make note of whether the charity provided any goods or services in exchange for any of the cash or property donated, such as a charity dinner dance or athletic event tickets. If so, the statement must include a good faith estimate of the value of the goods and services, as well as a disclosure that only the “net” amount is deductible.

Even if no goods or services were provided in exchange for the donation, it may be a good idea to have that stated on the acknowledgement.

  • Property contributions of more than $5,000

To deduct any contribution of property, other than publicly traded securities, valued at more than $5,000, a donor must obtain a qualified written appraisal and attach it to an appraisal summary signed both by the appraiser and the charitable organization.

Note that the $5,000 threshold applies per item or per group of similar items. For example, a donation of five bags of clothing valued at $1,500 each would be considered a property donation of more than $5,000 for which a qualified written appraisal is required.

  • Out-of-pocket expenses for charitable organizations

Some donors have out-of-pocket expenses during the course of their involvement with a charitable organization, such as travel costs for board of directors’ meeting or for mission trips. In order to deduct these expenses, the donor must show that there was no significant element of personal pleasure involved with the travel. The charitable organization must also provide written acknowledgement about those out-of-pocket expenses in the same way an acknowledgement about a cash donation of must be obtained.

  • Donations for seating at collegiate athletic event

Payments to colleges and universities for the right to purchase tickets to athletic events are generally 80 percent deductible as charitable contributions. The written acknowledgement from the college or university about the donation must disclose  the fair market value of such a right, which is generally 20 percent of the amount paid.

The bottom line is the IRS wants to see documented proof of charitable contribution before approving deductions. If you have any questions about any charitable contributions made last year, please let us know.