This is a good time during the year to discuss the Internal Revenue Service deductibility rules for charitable contributions with clients, as they are all probably being inundated with mail and telephone solicitations for donations.
Situation: This is a good time during the year to discuss the Internal Revenue Service deductibility rules for charitable contributions with clients, as they are all probably being inundated with mail and telephone solicitations for donations.
Solution: Regarding cash contributions, the IRS requires either a bank record (canceled check), a charge showing on a credit/debit card statement or a pay stub showing a deduction from net pay.
If the contribution is either a single payment or a series of related payments to the same charity that totals $250 or more, then the donor needs a written communication from the charity stating the amount given and that nothing was given to the donor in exchange.
The letter must be dated prior to the date of filing the tax return for the year of the contribution, including extensions. The donor can receive items of de minimis value such as personalized mailing labels, cards, mugs, etc.
For contributions of property, a taxpayer must have appropriate documentation of the property donated and the condition of the property on the date of contribution.
Additional information on how the property was acquired and how the fair market value was determined on the date of the contribution must be retained by the taxpayer.
The taxpayer — not the charity — has this burden of substantiation. Used property must be in good condition or better. The taxpayer can use any one of several websites to assist in determining the “thrift shop value” for use on the tax return.
There is also the issue of how to show charitable deductions on a tax return.
It would be advisable to list each cash contribution with appropriate amounts and the name of the charity. Avoid listing a large figure for miscellaneous deductions, which might prompt an inquiry from the IRS. For donations of property, it is not necessary to attach an explanation to a return unless the contribution exceeds $500. That requires the completion of Part 2 of Form 8283 (non-cash charitable contributions).
Should the value exceed $5,000, then a qualified appraisal should be completed and submitted along with Form 8283.
Contributions that are no longer deductible are cash gifts to charities where no receipt is obtained and no bank record exists. Placing cash in a collection plate when the charity does not use the envelope system or tossing money into the kettle during the holidays no longer qualify. Merely having a trinket of appreciation in exchange for a property contribution will not satisfy the statute. It would lack the list, condition and value of the contribution.
Obviously, if regular, continuous or large contributions are going to occur, it is in the taxpayer/donor’s best interest to consult a tax professional.
