Joe Moughon, CPA
29Dec/10Off

Audit-proof charitable contributions

Uncle Sam usually rewards you for your charitable giving.  As long as you meet the tax law requirements, you can write off donations. But you must comply with strict new recordkeeping rules that went into effect in 2007.

To make your charitable contribution deductible, refrain from giving gifts in cash.  Write a check or charge it instead.  If you can’t produce the required records, in an IRS audit you will lose the deduction.

The Pension Protection Act of 2006 imposed new requirements for donations.  Under current law, the IRS won’t allow a deduction for a contribution of cash, a check or any other monetary gift unless you maintain a record of the contribution such as a bank statement with cancelled check, a credit card statement or a written acknowledgement provided by the qualified charity.  Note contributions of $250 or more must have a written acknowledgement provided by the qualified charity.

If the taxpayer receives a benefit in exchange for a charitable contribution, the deduction is reduced by the value of the benefit received.

Note: Here is the kicker; there is no “de minimis” exception.  The new rules apply to all monetary contributions – no matter what the amount.  In other words you can’t simply keep a log of cash contributions like you did in the past.  Keep this requirement in mind when you throw loose change or dollar bills into a collection plate or bucket.

Here is more directly for the IRS:

To deduct any charitable donation of money, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. A bank record includes canceled checks, bank or credit union statements and credit card statements. Bank or credit union statements should show the name of the charity and the date and amount paid. Credit card statements should show the name of the charity and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card, and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

Prior law allowed taxpayers to back up their donations of money with personal bank registers, diaries or notes made around the time of the donation. Those types of records are no longer sufficient.

This provision applies to contributions made in taxable years beginning after Aug. 17, 2006. For taxpayers that file returns on a calendar-year basis, including most individuals, the new provision applies to contributions made beginning in 2007.

The new law does not change the prior-law requirement that a taxpayer get an acknowledgement from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet the requirements of both provisions.

To help taxpayers plan their holiday-season and year-end donations, the IRS offers the following additional reminders:

  • Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the year count for that year.  This is true even if the credit-card bill isn’t paid until next year. Also, checks count for the current year as long as they are mailed this year.
  • Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found on IRS.gov under, “Search for Charities.” In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even though they often are not listed in Publication 78.
  • For individuals, only taxpayers who itemize their deductions on Schedule A can claim a deduction for charitable contributions. A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceeds the standard deduction. Use Schedule A, available now on IRS.gov, to determine whether itemizing is better than claiming the standard deduction.
  • For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes a description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes a description of the property and its condition.
  • The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return. See IRS Publication 526, Charitable Contributions, for more information
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