Charitable contributions can provide a great tax benefit for individuals and businesses that need tax deductions and want to contribute to a good cause or organization. However, the IRS has some very particular rules regarding the records required to substantiate donations.
Tax Court Case:
A family with an adjusted gross income of $180,000 claimed a $90,000 deduction for non-cash charitable contributions, including $40,000 in furniture. No appraisals were obtained for any of the contributed items.
The Tax Court agreed with the IRS' position and disallowed almost the entire charitable contribution because the requirements to substantiate the deduction were not met. This case demonstrates the importance of keeping records to substantiate deductions. When deductions are claimed or reported improperly, the IRS can disallow the entire deduction, not just the incorrect amount.
To make sure that your charitable contributions count, below is a brief summary of the substantiation rules for different types of contributions. Although most donation records are not attached to tax returns, they will be required in the case of audit. You should keep the following types of records:
Bank records or cancelled checks showing the donation or written receipts from the organization
Property Contributions < $250:
A detailed receipt from the organization including the donee's name, the date and place of the donation, and a description of the property, OR records showing all this information as well as the cost and the fair market value
Cash and Property Contributions > $250:
Written acknowledgment from the charity is required (cancelled checks or other records alone are not sufficient).You must have a written acknowledgment from the charitable organization to claim a deduction on your tax return
Property Contributions > $500:
All the information required for property contributions < $250, plus information about how, when, and for how much the property was originally acquired
.Property Contributions > $5,000:
A qualified written appraisal of the property donated (except for donations of publicly traded securities)
While this newsletter offers a glimpse of the substantiation rules for charitable donations, the rules can get even more convoluted. If you have any questions about the documentation requirements for your charitable contributions, please contact us at (970) 223-2727.