It’s that time of year when we start gathering tax documents to put together our 2015 individual tax returns. Most of the documents that support our tax filings are fairly straight forward such as: W-2s, 1099s, mortgage interest statements and real estate tax bills. However, many taxpayers have a “soft spot” in their tax return – the deduction for charitable contributions.
The days of loosely estimating your charitable contributions of cash and property are long gone. There are very specific rules and regulations concerning the substantiation of charitable contributions. If the IRS chooses your tax return for examination, they will almost certainly review your charitable deductions to determine if the proper documentation has been obtained. Here’s a brief summary of the support you will need for contributions of cash and property:
Cash contributions under $250 – The taxpayer must obtain and keep a bank record or a written communication from the charitable organization. Written records prepared by the taxpayer such as check registers or personal notations are no longer sufficient. Bank records for this purpose include bank statements, canceled checks, or credit card statements. They must show the date paid, the name of the charity, and the amount of the payment.
Cash contributions of $250 or more – In addition to the above requirements, the taxpayer is also required to obtain a “contemporaneous written acknowledgment” from the charitable organization. To be contemporaneous, the written acknowledgment must be obtained no later than the date the taxpayer files the tax return for the year of the donation. The written acknowledgment must state whether the donee provided any goods or services in exchange for the contribution, and if so, a good faith estimate as to the value of the goods or services.
Property contributions – The rules concerning contributions of property can be very complex and depend on the types and amounts of property contributed. Here are a few basic rules to keep in mind:
- For all contributions of property, no matter the amount, you must keep reliable written records of the contributions, including the name and address of the donee organization, the date of the contribution, a description of the property, the fair value of the property and how you determined the fair value.
- If you claim a deduction for a contribution of property of $250 or more, you must obtain a contemporaneous written acknowledgement from the donee organization (as described above) that includes a description of the property donated, but not necessarily the value of the property. Separate contributions of less than $250 are not grouped together for purposes of this rule.
- If you claim a deduction for a contribution of property in excess of $5,000 (for one item or a group of similar items), in addition to the above requirements, you must also obtain a qualified written appraisal of the donated property from a qualified appraiser.
This is just an overview of the basic rules. More detailed guidance concerning the deductibility of charitable contributions and substantiation requirements can be found in IRS Publication 526.
The IRS and the Tax Courts have been very strict in their interpretation and enforcement of the substantiation requirements. There have been many recent Court cases where the taxpayer has shown substantial, good-faith compliance with the rules, but has still lost their case because they failed to meet all of the technical substantiation requirements. So before you file your tax return for 2015, make sure that you have the appropriate records to support your charitable contributions, and also don’t forget to obtain a written acknowledgement from the charity for contributions of $250 or more.