With contributions from Penny Sayre, CPA, Tax Manager
Substantiation requirements must be met for charitable donations to be allowed
The federal government encourages your generosity by allowing you to deduct your gifts to charities on your income tax return if you itemize deductions. However, you must follow the IRS’s reporting and substantiation rules to assure your charitable deduction is allowed. While all contributions must be substantiated, there are numerous and overlapping requirements.
For a contribution of cash, check, or other monetary gift, regardless of amount, you must maintain a bank record or a written communication from the donee organization showing its name, plus the date and amount of the contribution. Any other type of written record, such as a log of contributions, is insufficient.
For a contribution of property other than money, you generally must maintain a receipt from the donee organization that shows the organization's name, the date and location of the contribution, and a detailed description (but not the value) of the property. If circumstances make obtaining a receipt impracticable, you must maintain a reliable written record of the contribution. The information required in such a record depends on factors such as the type and value of property contributed.
Contributions Over $250
If the contribution is worth $250 or more, stricter substantiation requirements apply. No charitable deduction is allowed for any contribution of $250 or more unless you substantiate the contribution with a written receipt from the donee organization. You must have the receipt in hand when you file your return (or by the due date, if earlier) or you won't be able to claim the deduction. If you make separate contributions of less than $250, you won't be subject to the written receipt requirement, even if the sum of the contributions to the same charity total $250 or more in a year.
The receipt must set forth the amount of cash and a description (but not the value) of any property other than cash contributed. It must also state whether the donee provided any goods or services in return for the contribution, and if so, must give a good faith estimate of the value of the goods or services. If you received only “intangible religious benefits,” such as attending religious services, in return for your contribution, the receipt must say so. This type of benefit is considered to have no commercial value and so doesn't reduce the charitable deduction available.
Contributions Over $500
In general, if the total charitable deduction you claim for non-cash property is more than $500, you must attach a completed Form 8283 (Noncash Charitable Contributions) to your return or the deduction is not allowed. In general, you are required to obtain a qualified appraisal for donated property with a value of more than $5,000, and to attach an appraisal summary to the tax return. However, a qualified appraisal isn't required for publicly-traded securities for which market quotations are readily available. A partially completed appraisal summary and the maintenance of certain records are required for (1) nonpublicly-traded stock for which the claimed deduction is greater than $5,000 and no more than $10,000, and (2) certain publicly-traded securities for which market quotations are not readily available. A qualified appraisal is required for gifts of art valued at $20,000 or more. IRS may also request that you provide a photograph.
Recent Case Provides a Note of Caution to Taxpayers Related to Documentation of Noncash Charitable Contributions
As we begin the new tax year of 2015, a review of a 2014 Tax Court Memorandum Decision (TC Memo 2014-203, Thad D. Smith v. Commissioner) provides a reminder that the IRS and the courts take the charitable contribution rules seriously and that good tax documentation is required to support a deduction for noncash charitable contributions. Here’s a summary of the take-away lessons from the Smith case regarding documentation of noncash charitable contributions:
- Taxpayers must obtain a written acknowledgement from the charity that indicates what was donated, the date of the donation and a statement that no goods or services were provided in return for the donation or a description of what was provided by the charity in return for the donation. The written documentation from the charity must be received by the due date of the tax return or the date of filing, whichever is earliest.
- Taxpayers must maintain the following documentation for items donated (including groups of similar items) that exceed $500 in value: (1) date of acquisition of each item, (2) detailed description of the property and its current condition, (3) estimated cost of each item, (4) estimated current fair market value of each item, and (5) an explanation of how current value was determined.
- For noncash items (including groups of non-cash items) that exceed $5,000 included in the donation, an appraisal by a qualified appraiser must be obtained.
Recordkeeping for Contributions for which You Receive Goods or Services
If you receive goods or services, such as a dinner or theater tickets, in return for your contribution, your deduction is limited to the excess of what you gave over the value of what you received. For example, if you gave $100 and in return received a dinner worth $30, you can deduct $70. But your contribution is fully deductible if:
- you received free, unordered items from the charity that cost no more than $10.20 in 2014 ($9.90 in 2013) in total;
- you gave at least $51 in 2014 ($49 in 2013) and received only token items (bookmarks, key chains, calendars, etc.) that bear the charity's name or logo and cost no more than $10.20 in 2014 ($9.90 in 2013) in total; or
- the benefits that you received are worth no more than 2% of your contribution and no more than $102 in 2014 ($99 in 2013).
If you made a contribution of more than $75 for which you received goods or services, the charity must give you a written statement, either when it asks for the donation or when it receives it, that tells you the value of those goods or services. Be sure to keep these statements.
Cash Contribution Made through Payroll Deductions
You can substantiate a contribution that you make by withholding from your wages with a pay stub, Form W-2, or other document from your employer that shows the amount withheld for payment to the charity. You can substantiate a single contribution of $250 or more with a pledge card or other document prepared by the charity that includes a statement that it doesn't provide goods or services in return for contributions made by payroll deduction.
The deduction from each wage payment is treated as a separate contribution for purposes of the $250 threshold.
Substantiating Contributions of Services
Although you can't deduct the value of services you perform for a charitable organization, some deductions are permitted for out-of-pocket costs you incur while performing the services. You should keep track of your expenses, the services you performed and when you performed them, and the organization for which you performed the services. Keep receipts, canceled checks, and other reliable written records relating to the services and expenses.
As discussed earlier, a written receipt is required for contributions of $250 or more. This presents a problem for out-of-pocket expenses incurred in the course of providing charitable services, since the charity doesn't know how much those expenses were. However, you can satisfy the written receipt requirement if you have adequate records to substantiate the amount of your expenditures, and get a statement from the charity that contains a description of the services you provided, the date the services were provided, a statement of whether the organization provided any goods or services in return, and a description and good-faith estimate of the value of those goods or services.
Please call us if you have any questions about these rules. Together we can make sure that you'll get all the deductions to which you are entitled when we prepare your 2014 tax returns.