Well, they say that it is better to give than to receive, so how about choosing both simultaneously—now? For most of us, the tax benefits that are part and parcel of charitable donations can be a crucial component of our decision to give. And it’s always important to remember that there are creative ways to contribute; plus, it’s the perfect time to plan proactively for year-end while there is plenty of time to implement those ideas.
For those giving, charitable donation documentation is especially important. Though the IRS does not always examine these records, the agency has specific rules for substantiating charitable gifts. Ensuring ample time to meet with financial advisors, establishing correct filing protocols, and gathering appropriate documentation minimizes filing errors and (hopefully) headaches.
According to IRS regulations, taxpayers must maintain for all claimed deductions either:
- a written acknowledgment from the charity, or
- a bank record of all gifts in any amount.
Whichever method is utilized, the documentation must indicate the organization name, date, and gift amount.
Six Questions & Answers about Charitable Donation Documentation
1.What if I made my donation via payroll deduction?
If the donation is made through a payroll deduction, then the donor may use form W-2, a check stub, or another official document received from the employer as proof of the gift. A pledge card from the organization must also accompany the documentation.
2. How should I substantiate a cash gift exceeding $250?
When a cash gift is more than $250, then the IRS requires more stringent substantiation. In this case, donors must keep a written acknowledgment from the receiving organization. In addition to the standard amount, date, and recipient name, this acknowledgment must include a statement of whether or not the donor received goods or services in exchange for the gift—plus a good faith estimate of the value of such goods and services. Donors must also obtain all statements acknowledging their donations before filing a tax return claiming that deduction.
Note: Benefits of “insignificant value”—such as promotional items and some kinds of membership benefits—are exempt from this treatment.
3. What if I made multiple small donations to the same organization in the same year that total more than $250?
Multiple gifts (on the same day) of less than $250 each to the same organization are treated separately; therefore, they do not require the special substantiation mentioned above, even if the total amount exceeds $250. This rule applies to payroll-deducted donations, as well as personally offered gifts—and for both cash and non-cash donations.
4. What should I know about non-cash donations?
Responsibility for stating the value of their non-cash gifts lies with donors (not recipients). As with cash gifts, these gifts must also be substantiated. For non-cash donations valued over $250, however, the acknowledgment from the organization must also include a description of the property received and must specify cash and non-cash portions of the gift.
Note: Non-cash gifts must be in good condition to qualify for a tax deduction; credit should not be taken for property that should reasonably be discarded rather than donated.
5. Shouldn’t I complete another IRS form for non-cash gifts valued above $500?
Yes. Form 8283: Noncash Charitable Contributions must accompany deductions for non-cash gifts valued between $500 and $5,000. Completing Section A suffices for donors of such gifts—and for donors who give publicly traded securities, even if the securities are worth more than $5,000.
Non-cash donations worth more than $5,000 require the donor to fill out Section B of Form 8283, which also must be signed by a qualified appraiser and a representative of the receiving organization. Specifically when determining the value of non-cash gifts, donors should consider the cost of the entire collection of donated property. If the value exceeds $5,000, then Section B must be completed—even if the donation is made in separate gifts.
Note: The cost of the appraisal may not be deducted as a charitable donation, although it may qualify in some cases as a miscellaneous deduction.
6. Are there special rules for specific types of charitable contributions (e.g. stocks, art, and vehicles)?
Yes, certain non-cash gifts such as stocks, art, and vehicles, are subject to special treatment when used as tax-deductible donations.
- Stocks in a closely-held business: Rather than fulfilling all of the rules for contributions greater than $5,000, the taxpayer may attach a partially completed appraisal summary (and maintain other supporting records) if the value is between $5,001 and $10,000. Form 8283 must be signed and dated by the donee.
- Works of art worth $20,000 or more: Tax returns claiming this type of charitable deduction credit must be accompanied by a copy of the signed appraisal and may need to include a color photo of the piece(s).
Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes for more details, and for when it is necessary to attach this form to the tax return.
Shop Your Charitable Gift Options Early
Charitable gifts can benefit both recipients and donors. Take full advantage of this win-win situation, remaining vigilant to comply with IRS regulations. For help, invite CRI’s tax professionals to join your plans. We know the ins and outs of substantiating charitable gifts.