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Spotlight on Deductions for Charitable Donations

The IRS is “turning up the heat” on taxpayers who claim deductions for charitable donations. Due to stricter imposition of the rules, the records you keep must be able to support your tax return claims. Otherwise, you run the risk that your deductions may be reduced or denied.

What types of records are we talking about? There are two main categories for cash or cash-equivalent donations.

1. Contributions of $250 or more: The tax law generally permits you to deduct the full amount of cash contributions or donations made by check. To substantiate these charitable gifts, you are required to obtain a written acknowledgment from a qualified charitable organization in order to claim a deduction for a donation of $250 or more.

The acknowledgment must be obtained by the earlier of the date your tax return is filed or by the due date of the return (plus any extensions). It should include the following elements:

*The amount of cash or the check;

*A description of any noncash property that was contributed; and

*If any goods or services were provided, the value of the benefit.

Note: If the goods or services received consist solely of “intangible religious benefits,” you can substitute a statement to that effect.

Separate payments to the same charity generally will not trigger this requirement if

each individual donation is under $250. If donations are made through payroll deductions, each paycheck is regarded as a separate payment for this purpose.

2. Quid pro quo contributions: For a “quid pro quo contribution” (i.e., a contribution that is made at least partially in exchange for goods or services) above $75, the charity must provide a “good faith estimate” of the goods and services received and the amount of payment exceeding the value of the benefit.

Hypothetical example: Suppose you attend a dinner sponsored by a charitable organization. The ticket to the event costs $100, but the dinner is valued at $40. Result:

The charity must notify you in writing that the value of the dinner was $40 and that only $60 of your donation is deductible on your return. However, a written statement is not required if you receive token goods, minimal services or intangible religious benefits in return for your donation.

Responsibility for disclosing quid pro quo contributions over $75 rests with the charitable organization. The charity can provide this information in its solicitation or upon receipt of the contribution.

In addition, special rules for noncash contributions remain in effect. You must provide additional information on your tax return if your noncash contributions for the year exceed $500. Furthermore, if you donate property in excess of $5,000, you must obtain a qualified appraisal of the value of the property. The cost of the appraisal may be deductible as a miscellaneous expense (subject to the 2%-of-adjusted-gross-income floor).

When in doubt: Seek professional assistance with respect to the records required to substantiate your charitable deductions.

 

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