It’s great to know your donations to charity can yield immediate tax benefits. Congress continues to value the charitable deduction and, if you itemize your tax deductions, you can still take a deduction for a charitable contribution. In order to do this, however, there are certain requirements as to how the taxpayer should substantiate these donations. We are going to explore the necessary documents a taxpayer would want to keep for different types and magnitudes of donations.
Beginning with the lowest threshold: if the contribution is $250 or more you’ll need a written receipt from the charity. If you donate property with a value greater than $500, some additional requirements apply. Let’s use a magnifying glass to examine the details.
For monetary gifts of any amount, you must maintain a bank record or written communication from the donee organization that contains its name, and the date and amount of the contribution. If you make a monetary gift through text message, you will want to keep a bill from your cellular provider containing the required information. Be forewarned though, any other type of personal written record such as a log of contributions, will be inadequate.
For contributions of non-cash property, the general rules state you must maintain a receipt from the donee organization that shows the organization’s name, the date and location of the contribution, and a detailed description of the property. If obtaining a receipt like the one described above is impracticable, you must maintain a reliable written record of the contribution. (If you make separate contributions of less than $250, you won’t be subject to the written requirement even if the total of your less-than-250 contributions total more than $250 during the year) The information required depends on factors such as the type and value of the property donated. However, if the contribution is worth $250 or more you must have a written receipt from the donee organization, and complete section A of IRS form 8283 to attach to the tax return. An important requirement to note is that you need the receipt in hand when you file your return on which you wish to claim the deduction. A helpful resource in estimating current value for your donated items is the following comprehensive list of small item contributions from the Goodwill website. https://www.dcgoodwill.org/wp-content/uploads/2014/05/dcgoodwill-irs-donation-value-guideweb.pdf?x14703
You might be wondering: “what if I received any services in return for my donation?” In that case, the receipt from the donee must state whether goods or services were provided in exchange and must give a good-faith estimate of the value of the goods or services. (This does not apply if you received intangible religious benefits in return for your donation such as attending religious services.) In general, if your total charitable contribution deduction you claim for non-cash property is more than $500, you must attach a completed Form 8283 to your return or the deduction isn’t allowed.
For contributions of property with a value of greater than $5,000, you’re required to obtain a qualified appraisal and attach an appraisal summary to the tax return. (The exception to this rule is for publicly traded securities for which market quotations are readily available) Artwork donations have especially specific rules. For artwork valued at $20,000 or more you must attach a complete copy of the signed appraisal (not an appraisal summary) to the return. The IRS may also request you provide a photograph. This is in addition to submitting section B of IRS form 8283 which must include the qualified appraiser’s and donee’s signatures. It is important to remember to get this appraisal done by a qualified appraiser at the time of donation, and make sure you have a picture and detailed description of the artwork for substantiation purposes so you can claim the full deduction. Let’s not get too eager though, the IRS will only consider an appraisal valid up to no more than 60 days prior to the date of donation. If a piece of artwork has been appraised at $50,000 or more, you can ask the IRS to issue a “Statement of Value” which can be used as substantiation for deduction purposes.
One more contribution we should think about, is that of services provided. Although you can’t deduct the value of services you provide, some deductions are permitted for costs you incur while performing the services. Always keep track of your expenses, the services you performed, when you performed them, and the organization for which you performed services. Receipts and canceled checks are good examples of reliable written records relating to the expenses you incurred, and you can get a statement from the charity that contains a description, the date, whether the organization provided any goods or services in return, and a good-faith estimate of the value of those goods or services.
For any charitable deduction: your substantiation could be the one thing that causes you to miss out on a big tax advantage, or conversely allows you to decrease significantly the amount you owe. Tax time will be smoother for all of us if we can plan ahead for big deductions like this. We recommend looking ahead as a great method to reduce overall stress when the due date comes around. Let’s work together to put some of those tax dollars back in your pocket!