Are you an
organization that receives single contributions of $250 or more?
Are you an
organization that provides goods or services to donors who make contributions
of more than $75?
Are you a
donor who makes contributions to a charity?
Here are
eight things every taxpayer needs to know before deducting charitable
donations, and additional information for the charities receiving the
donations.
1. Make sure the organization qualifies. Charitable
contributions must be made to qualified organizations to be deductible. You can
ask any organization whether it is a qualified organization or check http://1.usa.gov/QT9bA5.
Approximately
275,000 organizations automatically lost their tax exempt status recently
because they did not file required annual reports for three consecutive years,
as required by law. Donations made prior to an organization's automatic
revocation remain tax-deductible. Going forward, however, organizations that
are on the auto-revocation list that do not receive reinstatement are no longer
eligible to receive tax deductible contributions.
2. You must itemize. Charitable contributions are
deductible only if you itemize deductions using Form 1040, Schedule A.
3. What you can deduct. You generally can deduct
your cash contributions and the fair market value of most property you donate
to a qualified organization. Special rules apply to several types of donated
property, including clothing or household items, cars and boats.
4. When you receive something in return. If your
contribution entitles you to receive merchandise, goods, or services in return,
you can deduct only the amount that exceeds the fair market value of the
benefit received.
If
the total amount of the contribution is over $75 and the donor receives goods
or services in return, the charitable organization is required to provide a
written disclosure informing the donor that only the amount above and beyond
the value of goods or services received is deductible and provide the donor
with a good faith estimate of the fair market value of the goods and services.
If
a religious organization provides only “intangible religious benefits,” the
acknowledgement does not need to describe or value those benefits, but it does
need to state that “intangible religious benefits” were received.
5. Recordkeeping. Keep good records of any
contribution you make, regardless of the amount. For any cash contribution, you
must maintain a record of the contribution, such as a cancelled check, bank or
credit card statement, deduction record or a written statement from the charity
containing the date and amount of the contribution and the name of the
organization.
For
charitable contributions made through payroll deductions, the following
documents can be used as written communication from the charity: pay stub, Form
W-2, other employer-furnished document that shows the amount withheld and paid
to the charity, or a pledge card prepared by the charity.
6. Pledges and payments. Only contributions
actually made during the tax year are deductible. For example, if you pledged
$500 in September but paid the charity only $200 by Dec. 31, you can only
deduct $200.
7. Donations made near the end of the year. Include
credit card charges and payments by check in the year you give them to the
charity, even though you may not pay the credit card bill or have your bank
account debited until the next year.
8. Large donations.
When making a charitable donation of cash or property of $250 or more,
it is the donor’s responsibility to prove entitlement of a deduction. This also applies to each single payroll
deduction of $250 or more. The charity
should provide a contemporaneous written acknowledgement (CWA) of your donation
– either at the time of donation or by using an annual summary to substantiate
several single contributions of $250 or more – but in the end, the taxpayer
bears the burden of proof. This
documentation – a receipt of sorts – must contain the following pieces of
information.
- The name of the organization.
- The amount of cash or a description (not the value) of any property contributed.
- A statement as to whether the donor received any goods or services in return for the donation.
- A description and estimate of the value of any goods or services provided to the donor.
Additionally,
in order for the CWAs to be considered contemporaneous, the CWA must be
submitted to the donor on or before the earlier of the date on which the donor
actually files their return for the year of the contribution, or the due date
(including extensions) of the return.
If
you make a donation of less than $250 to a charity, you do not need a CWA. For example, donations of $200 three times
during the year would not require a CWA to claim the deduction even though the
total contribution to the charity exceeded $250.
For
items valued at $500 or more, you must complete a Form 8283, Noncash Charitable
Contributions, and attach the form to your return. If you claim a deduction for
a contribution of noncash property worth more than $5,000 for other than
publicly-traded securities, you generally must obtain an appraisal and complete
Section B of Form 8283 with your return.
A
recent Tax Court opinion, Durden v. Commissioner, illustrates the importance of
proper substantiation of charitable contributions. The recent emphasis falls on the CWA meeting
all of the requirements and being contemporaneous. In this case, Mr. and Mrs. Durden donated
approximately $22,500 to their church.
While the church acknowledged the contributions, the statement didn’t
include any details as to whether any goods or services were provided in
return. They later submitted a second
CWA, but this one was deemed not contemporaneous. Eventually, the court ruled with the IRS in
refusing to accept either acknowledgement.
Obtaining
a CWA is the donor’s responsibility, and as illustrated in the example above,
it’s also the donor’s responsibility to ensure it meets required criteria.
Note to
Charities:
While the burden of proof lies with the taxpayer,
it is in the best interest of the charity to provide donors with all the
necessary documentation whether they ask for it or not. We encourage charities to send valid CWAs to
donors throughout the year; however, no later than January of the following
year.
While we understand that it is generally up to the
donor to ensure they receive proper substantiation, we advise nonprofit
organizations to understand the requirements.
We believe the knowledge will help to preserve donors’ charitable
contribution deductions.
In the end,
it’s important to remember that the responsibility falls on the donor to ensure
that they have proper documentation to receive this federal income tax
deduction. If all is done correctly,
both donors and organizations supported by the donation benefit from such
contributions.
