You’ve made your donation to a qualified organization- it helps the charity and, for your efforts, you may now include this contribution as an itemized deduction on your Schedule A. But how secure is that donation if your return were to be selected for audit? The Pension Protection Act of 2006 included several provisions that require enhanced recordkeeping for charitable contributions, and the IRS will most certainly be verifying these records should you be selected for audit.
For cash gifts of under $250, a statement from the charity showing the charity’s name, contribution date, and amount given will be required. Alternatively, a bank record of the contribution will suffice. Did you include cash donated (no receipt) such as to outside of department stores? No record equals no deduction.
Property donations of under $250 must be substantiated by a written receipt or letter from the charity showing the organization’s name, date, and place of the contribution, and a detailed description of the property donated (“3 bags of clothes” is not sufficient). The description should include what each item donated was, its condition (new, very good, good, etc) and its fair market value (FMV) at the time of the donation (for FMV of common items go to SalvationArmyUSA.org). Provide the IRS auditor with a vague (or blank) receipt from the charity, and they are likely to disallow the deduction.
Cash and/or property donations to one charity of over $250? Recordkeeping standards become stricter. The requirements stated above still apply, but a statement from the charitable organization as to whether goods or services were received is required (and if so, the FMV of those goods or services, as this portion is not deductible). Non-cash donations of over $500 require Form 8283 to be attached to your return, with cost basis and acquisition date of the property disclosed. In cases of single-gift cash donations of over $250, a canceled check alone is not sufficient proof. In addition, the written acknowledgement from the charity must be CONTEMPORANEOUS- meaning you must have had the acknowledgement letter in hand at the time of filing the return. There are documented instances of taxpayers getting statements from a church, for example, at the time of an IRS audit for their substantial donation during that tax year only to see the deduction disallowed because the acknowledgement letter was not received contemporaneous!
Donations of property valued at $5,000 or more (other than publicly traded securities) are required to have a qualified appraisal, signed by the appraiser, attached to the original tax return along with Form 8283. Failure to do so may result in losing the deduction.
Good, timely, and detailed records is the key. You work hard for the money you donate. Don’t risk losing those deductions due to poor or non-existent recordkeeping in the event of an audit.
If you have questions about this topic, please contact us.
Written by: Scott Gallagher