Charitable Donation Substantiation
Giving to charity is great; getting a tax deduction for it is even better.
The IRS is not typically known as a “lenient” organization but when it comes to charitable donations, they can be downright ruthless. If not properly substantiated, deductions for charitable donations can be disallowed by the IRS even if there is no doubt that the donation took place.
When it comes to substantiating charitable donations, the requirements vary depending on the type and amount of the donation. Individual donations of cash for less than $250 require either bank records or a written acknowledgment from the organization. If you give cash it is important to get a receipt. Otherwise a credit card statement or cleared check will suffice.
Cash donations of $250 or more require written communication which includes the organization name, the date, amount of the contribution, and whether any goods or services were received in exchange. In most cases no good or services are received so it is important that this language be included in the letter. If any goods or services are received in exchange the value should be identified on the letter and your deduction should be reduced by this amount.
For donations of property you must keep a receipt from the organization which includes their name, address, and a description of the items donated. The value of the property does not have to be included on the receipt. We recommend taking pictures of all donated items to document the quantity and condition at the time of donation.
For donated property valued at $5,000 or more a third-party appraisal is required. This rule does not apply to publicly traded securities if the value of the stock is readily obtainable. Appraisals are required for donations of autos, boats, or planes if their fair market value is greater than $500.
You may be thinking that this is no big deal and that you can simply get the required substantiation from if you get audited. No need to worry about it until then, right? Wrong…very wrong. To take a deduction for charitable donations you must have the receipt from the organization before the filing of your tax return or the due date, whichever is sooner. This is very important and is often where the IRS will win their case.
David Knittel, Director of Tax, PracticeCFO