Recordkeeping Rules for Charitable DeductionsMarch 12, 2012
Kevin D. Fontana, CPA, MSA
Year in and year out, charitable donations often provide big deductions for high-income individuals at tax return time. Deductions for charitable gifts may be claimed only by taxpayers who itemize their returns, but even itemizers are at risk if they do not have the requisite proof to back up their claims.
If deductions don’t measure up, the filer could be forced to forfeit all or part of his/her charitable deduction. Here is an overview of the most important rules.
Cash contributions: Under a recent tax law change, deductions for all monetary gifts – regardless of the amount – may be disallowed if the donor does not maintain either a bank record (including a canceled check, bank statement or credit card statement) or a written communication from the charity indicating the donor’s name, contribution amount and date of the contribution. Technically, this covers everything from million dollar grants made to a college or hospital to the spare change donated during the holiday season.
Contributions of $250 or more: The IRS also requires charitable donors to obtain a written acknowledgement from a charitable organization for gifts of $250 or more. The acknowledgement must be obtained by the time the tax return is filed. It should include the amount of the check or cash donated, a detailed description of any property that was donated and the value of the benefit received if any goods or services were provided. There is one key exception, though – filers do not have to establish a value for “intangible religious benefits”.
Contributions made through payroll deductions may be substantiated by pay stubs or a W-2 form. It is important to note that substantiation is not required if the organization receiving the donation files a return with the IRS providing the information is included in an acknowledgement.
Quid pro quo contributions: If a “quid pro quo” contribution is made (i.e., a contribution made partially or fully in exchange for goods or services) for an amount of more than $75, a good faith estimate must be obtained from the charity detailing the value of the benefit received. For example, say a person attends a fundraising dinner where the tickets cost $100 each and the dinner is valued at $40. The charity must provide a written statement limiting the deductible amount to $60 per ticket. However, a written statement from a charity is not required if the person receives token goods, minimal services or intangible religious benefits in exchange for the donation.
There are a few other points to keep in mind.
Charitable gifts of property exceeding $500 in 2011 require additional information attached to the tax return. If the donation for non-cash property exceeds $5,000, the person is also required to provide an independent appraisal of the property’s value. (The cost of the appraisal is deductible as a miscellaneous itemized deduction subject to the usual tax law limits for miscellaneous expenses).
People should contact a tax professional with any questions regarding deductions for charitable donations on 2011 returns.
Kevin D. Fontana, CPA, MSA, is a manager with BlumShapiro,the largest regional accounting, tax and business consulting firm based in New England, with offices in West Hartford and Shelton, CT and Boston and Rockland, MA. The firm serves as business advisors for today’s leading companies, non-profit organizations and government entities, working to strategically tailor and consistently deliver tested solutions for unlocking an organization’s full potential. For more information about BlumShapiro, visit blumshapiro.com.