If you’re charitably inclined and itemize deductions, you may be entitled to deduct charitable donations. The key word is “may” because there are requirements you must meet. One such requirement is the need to substantiate charitable gifts with proper documentation that will satisfy the IRS. Indeed, a charitable gift may be legitimate, but if the taxpayer fails to substantiate it properly, the deduction may be lost.
Making cash donations
Cash donations, regardless of the amount, must be substantiated with one of the following:
Bank records. These can include bank statements, electronic fund transfer receipts, canceled checks (including scanned images of both sides of a check from the bank’s website) or credit card statements.
Written communication. This can be in the form of a letter or email from the charitable organization, showing the donee’s name, the contribution date and the amount. A blank pledge card furnished by the donee isn’t sufficient.
In addition to the above, cash donations of $250 or more require a contemporaneous written acknowledgment (CWA) from the donee that details the following:
- The contribution amount, and
- A description and good faith estimate of the value of any goods or services provided in consideration (in whole or in part) for the donation.
You can use a single document to meet both the written communication and CWA requirements. For the CWA to be “contemporaneous,” you must obtain it by the earlier of 1) the extended due date of your tax return for the year the donation is made, or 2) the date you file your return.
Making noncash donations
You must substantiate noncash donations of less than $250 with a receipt from the donee showing the donee’s name and address, the date of the contribution, and a detailed description of the property. For noncash donations of $250 or more, there are additional substantiation requirements depending on the size of the donation:
- Donations of $250 to $500 require a CWA.
- Donations over $500 but not more than $5,000 require a CWA and you must complete Section A of Form 8283 and file it with your tax return. Section A includes a description of the property, its fair market value and the method of determining that value.
- Donations over $5,000 require all the above, plus you must obtain a qualified appraisal of the property and complete Section B of Form 8283 (signed by the appraiser and the donee). There may be additional requirements in certain situations. For instance, if you donate art of $20,000 or more, or any donation valued over $500,000, you must attach a copy of the appraisal to your return. Note: No appraisal is required for donations of publicly traded securities.
Additional rules may apply to certain types of property, such as vehicles, clothing, household items or securities.
The rules are complex
The regulations on substantiating charitable donations are complex, and one mistake can cause you to lose valuable tax deductions. When in doubt, contact us to ensure you follow all the rules correctly.
