Accountants CPA Hartford
William Brighenti, Certified Public Accountant
Certified QuickBooks ProAdvisor
Office Address:  46 Mildrum Road, Berlin, Connecticut 06037-2423      Phone:  (860) 828-3269      Email:  info@cpa-connecticut.com
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Obtain Documentation for Cash and Noncash Charitable Contributions
in order to avoid adding the IRS to your list of nondeductible charities

Cash Contributions to Charities

Be advised that the Internal Revenue Service has tightened its requirements for the deductibility of cash and noncash contributions to charities, including churches. The taxpayer is required to possess written proof of the contribution regardless of its amount. No longer can the taxpayer merely enter on lines 16 and 17 under “Gifts to Charity” arbitrary amounts of hundreds or thousands of dollars. Too often have I witnessed taxpayers submitting high guesstimates—if not imaginary gifts—on tax returns, believing that the IRS would never challenge the legitimacy or amounts of these deductions.  For the taxpayer to continue to do so today in light of the IRS's recent posture toward charitable contributions  would not merely be careless, but foolishly reckless, flagging an audit and resulting in significant penalties and other expenses.

The charitable cash tax deduction must be supported by written evidence showing the name of the charitable organization, the date of the contribution, and the amount. Written evidence acceptable to the Internal Revenue Service includes the following:

  1. Canceled checks
  2. Bank or credit union statements
  3. Credit card statements
  4. Receipts from the charitable organizations
  5. Pay stubs, Form W-2, or other documents furnished by an employer
  6. Pledge cards
However, each of these documents must state the organization’s name as well as the dates and amounts of the contribution, although one statement of acknowledgment from the charity containing all of the required information may meet the substantiation requirements. In addition, a charitable organization is required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75. Furthermore, you must obtain all documentation supporting your cash contributions on or before the earlier of the date you file your return for the year you make the contribution, or the due date, including extensions, for filing the tax return.

Noncash Contributions to Charities

For a contribution not made in cash, the records you must keep depend on the amount of all similar items of property donated to any charitable organization during the year. For amounts of less than $250, a receipt, letter, or other written acknowledgment from the charity must be obtained showing,
  1. the name of the charity
  2. the location and address of the charity
  3. a description in sufficient detail of the property contributed.
In addition to the above information, your records must also include the following:
  1. the original cost or basis of the property
  2. the fair market value of the property at the time of donation
  3. the method of deriving the property’s fair market value
    1. appraisal
    2. thrift shop value
    3. comparable sales
    4. catalog
Access to the internet provides comparable values of properties in good or better condition. Simply perform a search on google: ebay and other sites have comparable values on a host of items; and most charities provide a value guide of donated clothing and household items. If a donation is left at a charity’s unattended drop site, the obtainment of a written receipt is deemed impractical and thus not required by the IRS. However, you still are required to provide a written record of the donation, including the impracticality of obtaining a receipt, its cost and fair market value, and the method used to determine that value.

A deduction for any item with minimal monetary value may be denied. Moreover, no deduction is allowed for clothing and household items that are not in good condition or better, unless it is for more than $500 and a qualified appraisal of the clothing or item is included with your tax return. Household items include furniture and furnishings, electronics, appliances, linens, etc.  They do not include food, paintings and other objects of art, antiques, jewelry and gems, and collections.  Special rules apply to food inventory, capital assets, and such.

For noncash contributions of at least $250 but not more than $500, in addition to the required information mentioned above, the charity’s written acknowledgment must also include whether or not the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits), and a description and good faith estimate of the value of any goods or services. If the only benefit received was an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in a commercial transaction outside the donative context, the acknowledgment must say so and does not need to describe or estimate the value of the benefit.

For noncash contributions over $500 but not over $5,000, in addition to the above information, the date of acquisition or completion of the property, the means of acquisition (e.g., purchase, gift, inheritance, exchange, etc.), and any adjustments to basis must also be provided by you.

For noncash contributions over $5,000, in addition to all of the above, generally, you must also obtain a qualified written appraisal of the donated property from a qualified appraiser.

You must file Form 8283 if the amount of your deduction for all noncash gifts is more than $500. In Section A of Form 8283, include items and groups of similar items for which you claimed a deduction of $5,000 or less per item or group of similar items and all publicly traded securities, even if the deduction is for more than $5,000.  In Section B of Form 8283, include items and groups of similar items for which you claimed a deduction of more than $5,000, excluding publicly traded securities included in Section A.

In order to avoid any IRS penalties assessed for insufficient documentation of charitable contributions deducted on your tax return, it is essential to obtain receipts of payment, indicating the donee and the donee's location, a detailed description of the gift, its value and the method used to determined such, and the date of the gift.  Continue to give, but give tax wisely.  Make it a general policy never to give cash.  Instead write a check or use your credit card, even for contributions of small dollar amounts.  It does not matter to the donee whether it receives cash, a check, or a credit card; it will gladly take any form of payment from you.  And for all noncash contributions, always obtain a detailed receipt or an acknowledgment on the charity's letterhead or stationary.  At the end of the year, a check, credit card payment, receipt, or other form of acknowledgment might make all the difference in the world to an IRS agent to allow you to deduct that gift on your tax return.

For additional assistance in claiming a deduction on significant charitable contributions, please consult appropriate professional advice from your certified public accountant and/or your attorney.  This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice.

Have a tax or an accounting question?  Please feel free to submit it to William Brighenti, Certified Public Accountant, Hartford CPA Accountants.  For information and assistance on any tax and accounting issue, please visit our website, Accountants CPA Hartford, and our blog, Accounting and Taxes Simplified.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.  The above tax advice was written to support the promotion or marketing of the accounting practice of the publisher and any transaction described herein.  The taxpayer recipients of this offering memorandum should seek tax advice based on their particular circumstances from an independent tax advisor.
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