Are You Keeping Adequate Records of your Charitable Contributions?

If you are a taxpayer who itemizes deductions, you may take advantage of the deduction for non-cash contributions to a 501(c)(3) charitable organization. The IRS rules for validating deductions to charities are strict and to avoid having your deduction denied it is very important to keep detailed records. In a recent Tax Court case, a married couple had their $37,315 deduction denied due to lack of substantiation. Here is an overview of the recordkeeping requirements based on amounts contributed:

  • Gifts < $250: You should obtain and keep a receipt from the charity with a description of the items donated. For some charities, like Goodwill, that simply have an outdoor drop box where you can leave items, it is impractical and sometimes impossible to obtain a receipt. In this case, you should keep reliable written records which include the items contributed and how you arrived at the fair market value that you will use on your tax return. Many charities have a listing available with recommended fair market values for various items and conditions.
  • Gifts from $250-$499: Obtain a written receipt from the charity describing the property and whether or not you received any benefits in return for your gift. For example, you may have bought tickets for $300 to a charity event with a dinner that was worth $50. In this case, you would get a $250 charitable deduction. An acknowledgment is required for each contribution above $250 even if multiple donations are made to the same organization throughout the year.
  • Gifts from $500 to $4,999: When you contribute non-cash items with a total value over $500, you must complete Form 8283 with your tax return. On this form you must list each charity that you contributed to with its address, the date of donation, a description of the items donated, the items original cost to you, their fair market value, and which system you used to arrive at that FMV.
  • Gifts of $5,000 or more: When you contribute non-cash items with a total value over $5,000, you must complete Form 8283 and provide an independent appraisal of the donated property. When determining if your deduction is greater than $5,000, combine deductions for all similar items donated to charities during the year.

Also, be sure to obtain your written acknowledgements from the charities that you contributed to by the earlier of:

  1. The date you file your tax return
  2. The due date for the return (including extensions)

It is very important to comply with IRS substantiation requirements for charitable contributions. The best and easiest way to do this is by good recordkeeping. Please feel free to contact us at ARM with any questions on the requirements.