CPA & Business Advisory Blog

Nailing Down Deductions for Charitable Gifts

If you are like many taxpayers, one of the biggest tax deduction items on your return is charitable donations. But deductions are not automatic if you do not have the proper records to back up your claims. Here are several important reminders for the current tax filing season:

Monetary contributions: Deductions for all monetary gifts, regardless of the amount, may be disallowed if the donor does not maintain either a bank record—including a cancelled check, bank statement or credit card statement—or a written communication from the charity indicating the donor’s name, contribution amount and date of the contribution. Technically, this covers everything from million-dollar grants made to colleges or hospitals to spare change donated during the holiday season.

Contributions of $250 or more: The IRS also requires charitable donors to obtain a written acknowledgment from a charitable organization for gifts of $250 or more. The acknowledgment must be obtained by the time you file your tax return. It should include the amount of the check or cash donated, a detailed description of any property that was donated, and the value of the benefit received if any goods or services were provided. Key exception: You don’t have to establish a value for “intangible religious benefits.”

Contributions made through payroll deductions may be substantiated by pay stubs or a Form W-2. Note: Substantiation is not required if the donee organization files a return with the IRS providing the information to be included in an acknowledgment.

charityQuid pro quo contributions: If you make a “quid pro quo” contribution (i.e., a contribution made partially or fully in exchange for goods or services) for an amount above $75, you must obtain a good faith estimate from the charity detailing the value of the benefit received. For example, say you attend a fundraising dinner where the tickets cost $100 apiece and the dinner is valued at $40. The charity must provide a written statement limiting the deductible amount to $60 per ticket. However, a written statement from a charity is not required if you receive token goods, minimal services or intangible religious benefits in exchange for your donation.

There are several other key points to keep in mind. For example, if you gave charitable gifts of property exceeding $500 in 2014, additional information must be attached to your tax return. If your donation for noncash property exceeds $5,000, you must also provide an independent appraisal of the property’s value. Note: The cost of the appraisal is deductible as a miscellaneous itemized deduction subject to the usual tax law floor of 2% of adjusted gross income (AGI).

Finally, be aware that certain itemized deductions—including those for charitable contributions—are reduced for high-income taxpayers based on modified adjusted gross income (MAGI). Contact your professional tax advisers for details.

In summary: The recordkeeping rules for charitable donations are tough with a capital T. However, if you have the proper documentation, you may be able to claim top-dollar deductions on your 2014 return.

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