Do you remember when you could estimate the amount of a certain amount of giving to a charity without having a lot of documentation? “I estimate I dropped $20 to the Salvation Army kettle, and another $5 per week to the church collection, plus donated some clothes and other items valued at around $50… call it $330.” Those days are long gone.
Cash Donations: If you drop $20 cash in the bell ringers bucket, and they don’t give you a receipt, it is NOT a deductible donation.
Anymore even modest cash donations can’t be deducted unless you have a canceled check, credit card charge, bank statement or written receipt from the charity to substantiate the deduction.
Furthermore documents proving you made the charitable contribution have to be contemporaneous, meaning they have to be created at or near the time of the donation; acknowledgements from the charity have to be received before the earlier of the date you file your taxes or the due date of the tax return including extensions. If you receive a required written acknowledgement dated after you file, the deduction may be denied in audit.
For donations of cash, check or charge that are $250 or more you must have a written acknowledgement from the charity, or certain payroll records, which indicate the date of the donation and the amount. Again the substantiation (the proof that you gave this money) must be contemporaneous. And it must be received before you do your taxes.
Non-cash Donations: The situation is more complicated when you donate non cash items.
If the value of noncash donations is under $250 a receipt of the donation with the date, charity’s name & a reasonably detailed description of the goods donated-you don’t have to get a receipt in the case it is inconvenient to do so (such as a charity drop box). The key here is reasonably detailed description; I advise people to take pictures of the donated goods–digital cameras make it easy, why take a chance? Some other records needed to value the donation maybe required as well.
If the value of the property exceeds $250 then the charity must supply a written receipt, which also includes whether or not you received any benefit from donating those goods and if so the Fair Market Value of that benefit, in addition to the other documents. Again this receipt needs to be dated and received before you file your taxes.
If the value of the property exceeds $500 then you need even more information about the property you donated
- How you got it, purchase, gift, bequest, inheritance
- The approximated date you got it, or if you created it, when it was substantially completed
- Its cost or other basis
Finally if the property donated exceeds $5000 you will need a qualified appraisal of that property.
Two recent cases before the IRS affirm the need to keep adequate substantiation & get the written acknowledgement from the charity in a timely fashion.
Case 1: Ordinarily a taxpayer can deduct their out of pocket costs incurred on behalf of a charitable organization. In this case a woman was doing just that, she paid vet bills, for food and other expenses of feral cats she fostered for for a tax-exempt organization. But she failed to get contemporaneous acknowledgement of her large expenses from that organization. The Tax Court ruled in favor of the IRS; she was not allowed to deduct those expenses even though she had other documentation of them [Van Dusen, 136 TC No. 25].
Case 2: A donor made a large donation to a non-profit organization, but the organization did not give him a receipt. In a Private Letter Ruling, even if the organization now amends its Form 990 acknowledging the gift that will not suffice to OK the donor’s deduction.
As you can see from the taxpayer standpoint, documentation including timely written acknowledgement from the charity is required for even modest donations. Charities should always acknowledge their donors, and do so quickly, especially if they give more than $250.
As always, small business services and taxation are our business. If you need help with this issue, or require other services, Please give Art & Business Consulting a call. We would love to engage you as a client.