If you’re like most people, you regularly donate to various causes during the year. And, like most people you scramble at tax time to make sure you have paperwork for giving to all of those great causes. Use the start of the school-year as a good time to double-check your records before the tax time rush.
It’s amazing to me how many charities, even large well established ones, don’t issue acknowledgments that satisfy the IRS requirements.
Here are some examples that make it easy to see why having the paperwork on file matters:
- One of my clients was audited by the IRS solely based on documentation for charitable contributions. Fortunately, when we prepare returns we are diligent about reviewing all charitable acknowledgments to assure they comply with IRS requirements. We provided all necessary documentation and the IRS did not make any changes to her tax return.
- I’ve also seen several cases recently were IRS denied large charitable contributions based on technicalities.
- In one case, the IRS didn’t dispute that the taxpayer had actually made the contribution, but instead denied the entire deduction because the acknowledgment letter didn’t have these magic words: “no goods or services were provided in exchange for the contribution.” By the time the audit came around, it was too late to get the contemporaneous acknowledgment included. You must have the acknowledgement letter in hand before you file your return.
With the IRS is increasingly cracking down on charitable contributions, here are a few rules to understand before filing your taxes:
- For contributions of $250 or more, you must have (and keep) a contemporaneous written acknowledgment from the charity which describes the property you contributed and either confirms that no goods or services were provided to you in exchange for your contribution or states the value of anything you received from the charity in exchange.
- Noncash contributions in excess of $500 must be reported on Form 8283 which you submit with your income tax return.
- If the value of the property is over $5,000, you must also obtain an appraisal from a person who meets certain requirements established by the IRS.
You may be able to take a tax deduction for the value of artwork, collectibles (such as books, coins, stamps, jewelry or memorabilia), household items, or you can even donate your car to a charity.
Beware that special rules apply to donating of a car, boat or other motorized vehicle. You’ll need additional documentation from the charity. And, except in limited circumstances, it’s important to remember that your deduction is limited to the amount the charity receives when it actually sells your vehicle to an unrelated party.
While most of these rules have been in place for a long time, the IRS has really been focusing in on these contributions over the last few years.
When we prepare a tax return, we look at all the charitable acknowledgments. If the letters don’t have the “magic words,” we will contact the charity on your behalf to get a new letter.