It’s the holiday season and the time to share our bounty with those less fortunate. An added bonus to the joy of giving is the ability to deduct the contributions on our tax returns.
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In order to enjoy a write off for a contribution, you must be able to itemize deductions and the donation must be made to a qualified 501(c)(3) organization. Donations to individuals and families do not qualify.
Several years ago the IRS clamped down on the requirements to take the deductions for charitable giving, so if you are making cash donations, please observe the following:
- You need proper documentation to support charitable giving that must include a copy of the cancelled check, bank, credit union or credit card statement showing the name and posting date as well as a letter from the charity indicating the date, amount paid, description and estimate of value of goods or services provided by the charity, if any.
- The documentation must be contemporaneous. That means that if you are audited, you must already have the acknowledgment letter in your tax file. The IRS will not accept any letters that are generated after the date the taxpayer files his tax return or the due date (including extensions) for filing the original return – whichever is earlier.
Non-cash contributions are subject to special rules as well:
- If the value of the items donated are less than $250 a receipt from the recipient or reliable records will be sufficient. Make sure you use reasonable estimates of fair market value.
- If the donations are valued at more than $250 but less than $500, you will need a contemporaneous written acknowledgement from the charity. This letter should include the name of the charity, date, amount paid and a description of any goods or services provided by the charity.
- If the property donated is valued at more than $500 but less than $5,000, you will also be required to provide the following: how you got the property (gift, purchase, etc.), the date you got the property and the cost or other basis of the property. You will be required to file IRS Form 8283, Noncash Charitable Contributions.
- If the value of the property (excluding gifts of stock, art, and autos) is greater than $5,000, you will need to attach a qualified appraisal to Form 8283 and complete page 2 of the form.
- Donations of art valued at more than $20,000 must be accompanied by a signed appraisal and a photograph.
- No appraisal is required for gifts of publicly-traded stock as market quotations on the date of the gift are easily available on the web, but you must attach Form 8283 to your tax return. If the stock is not publicly traded and it’s valued at more than $5,000, you will need an appraisal.
- Vehicles, boats, and airplanes with a value of more than $500 are required to be accompanied by a contemporaneous written acknowledgment from the charity. They should use IRS Form 1098-C to report the value of vehicle donations if the vehicle is sold. The value will be the sale price. If the vehicle is kept and used within the donee organization, the fair market value of the vehicle is the amount allowed as a charitable deduction.
Be sure that all appraisals and acknowledgement letters are secured at the time of the donation. A taxpayer was recently disallowed a donation of $18 million in real property to a nonprofit organization simply because he did not have a contemporaneous appraisal of the property. Don’t let that happen to you.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.