CHARITABLE CONTRIBUTIONS AND HOW THEY RELATE TO YOUR TAX RETURN
An area I have had to deal with in the audits I have been involved with is charitable contributions. The basics of charitable contributions in relation to your tax return are:
- You can deduction qualified contributions only if you file Schedule A, Itemized Deductions.
- Deductible contributions are those given to qualified organizations including,
- churches, synagogues, temples, mosques, and other religious organizations
- Federal, state, and local governments if for public purposes
- Nonprofit schools and hospitals
- Public parks and recreation facilities
- Charitable non-profit organizations (those listed in Publication 78)
- Non-deductible contributions include amounts paid to or for:
- Civic and social organizations
- Most foreign organizations
- Groups that are run for personal profit
- Groups whose purpose is to lobby for law changes
- Homeowners’ associations
- Individuals
- Political groups or candidates for public office
- Cost of raffle, bingo, or lottery tickets
- Dues, fees, or bills paid to country clubs, lodges, fraternal organizations
- Tuition
- Value of your time or services
- Value of blood give to a blood bank
- The contribution must be for the use of the organization and not designated by you for a specific person.
- You must reduce the amount of the payment for the value of any benefit you received. The charity is required to provide the value to you.
- You can deduct your contribution at the time of unconditional delivery ie. The date a check is mailed, the date a contribution is charged to your credit card, online payment is the date your bank takes the funds out of your account. However, if you make a conditional gift that depends on future events that may not take place, you cannot take a deduction until the event happens.
- You must keep records to prove the amount of the contributions you make during the year. The kind of records depends on the amount of contribution and if they are cash, noncash, or out-of-pocket expenses.
- Cash (credit card, check) contributions-You must keep one of the following:
- A bank record showing the name or the organization, the date and amount of the contribution. These may include a canceled check, a bank statement, or a credit card statement
- A receipt or other written communication from the organization showing the name and the date and amount of the contribution.
- If a payroll deduction you must keep a copy of your pledge document showing the name of the organization and pay stub showing the date and amount of the contribution.
- If a single contribution totals $250 or more you must have an acknowledgement of your contribution from the organization showing each contribution amount and the date. The acknowledgement is required to state if you received any goods or services in return for your contribution and the value of such goods or services. You must receive this acknowledgement prior to the date your file your return (as long as your return is not late).
- Non-cash contributions-For all non-cash donations you must keep the name and address of the organization, the date and location of the contribution, a description of the property in detail, the fair market value of the property at the time of the contribution and how this was determined, and the cost or other basis of the property, and any terms or conditions attached to the property. In addition depending on the value of the gift you must also have:
- Less than $250, you must get a receipt from the organization showing the name of the organization, the date and location of the donation, and a reasonably detailed description of the property. However, if it is impractical to get a receipt, you are not required to have one (ie. Leaving items at an unattended drop site).
- Over $250 but less than $500, a receipt from the organization including the same information as required for a gift of less than $250, but in addition, it must also state if the organization gave you any significant goods or services as a result of your contribution, and a description and good faith estimate of the value of such goods or services.
- Over $500 but less than $5,000, a receipt from the organization including the same information as required for a gift of less than $250, but in addition your records must also include how you got the property, the approximate date your got the property, and the cost or other basis.
- Over $5,000, a receipt from the organization including the same information as required for a gift of less than $250, but in addition your records must also include how you got the property, the approximate date your got the property, and the cost or other basis, and generally, you must also obtain a qualified written appraisal of the property from a qualified appraiser.
- Out-of-pocket expenses incurred in rendering services to a qualified organization must meet the following three rules
- You must have adequate records to prove the amount of the expense (mileage logs, receipts for expenses, etc)
- You must get an acknowledgment from the organization that contains a description of the services you provided, a statement of whether the organization provided you any goods or services in exchange for your expenses, a description and a good faith estimate of the value of such goods or services provided to you.
- You must receive the acknowledgement prior to filing your return (assuming it is not filed late).
Ultimately it is your responsibility to determine if an organization is a qualified organization in addition to making sure you have the required documentation. If you have listed charitable contribution on your organizer we will review the list of charities and ask about ones we know to be questionable, but if you question the validity of a deduction please let us know and we can check it out in advance of preparing your return. It is also your responsibility to maintain the proper documentation to support your deductions.
There are further rules regarding the amount of the deduction allowed as well as limits on total deductions allowed depending on the information you provide to us regarding how the contributions was paid and who it was paid to, to please provide detail about all of your donations with that in mind.
The information in this document is not intended to be all inclusive. If you have questions about a particular situation, please call the office.
Cynthia Harelson, CPA PC 