How to Claim Charitable Contributions on your Taxes

Difficulty: Challenging

Instructions

Things You'll Need:

Bank Records
Canceled Checks
Receipts
Credit Card Statements
Other Written Records

Step 1

Let's look at cash contributions first. That includes contributions paid by cash, check, electronic funds transfer, credit card, or payroll deduction. Regardless of how large or small the contribution is (yes, even a dollar placed in the well-known red kettle), you must have one of the following to claim the deduction and have it stand up in an audit without fail:
1. "A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. Bank records may include:
a. A canceled check,
b. A bank or credit union statement, or
c. A credit card statement.
2. A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution.
3. The payroll deduction records described next.

Payroll deductions. If you make a contribution by payroll deduction, you must keep:
1. A pay stub, Form W-2, or other document furnished by your employer that shows the date and amount of the contribution, and
2. A pledge card or other document prepared by or for the qualified organization that shows the name of the organization."

Everything within the quotation marks above is a direct quote from IRS. Going back to the well-known red kettle for just a moment: I have represented many taxpayers in audits, but have not yet ever seen an auditor reject a claim of $5, $10 or $20 dropped into a Salvation Army kettle or UNICEF etc. collection bucket at the check stand. Just keep in mind that any undocumented cash contribution can be rejected in an audit.
Step 2

There is tremendous confusion about the rules for more than $250 or less than $250 given to a single organization, so let's clear that up next. That rule only applies to a SINGLE gift of more than $250 given all at once to a single organization. So if you give $25 per month as a payroll deduction to a charity or as tithing at your church, the "over $250" rule does NOT apply. Each contribution is counted as a separate contribution. If you do make a single monetary contribution of $250 or more to an organization or church, you may deduct it if you have a written acknowledgment of each $250+ contribution from the organization. The acknowledgment should show the amount and should state that you received no tangible benefit in exchange for your monetary gift. If the contribution is made by payroll deduction, in addition to payroll records you should also have a pledge card or other acknowledgment on which the organization states it does not provide any tangible benefits in exchange for payroll deduction gifts. Either type of acknowledgment must be in your possession by the earlier of the date you file your tax return or the return's due date, including extensions filed.
Step 3

Now for non-cash contributions. This type of contributions includes any tangible property (such as clothing, supplies, furniture, etc.) you donate, as well as stocks and other securities, and certain capital gain property. We will only discuss tangible property with a total value of less than $5,000 in this article, for simplicity's sake.

The rules and amounts are different for non-cash contributions than for monetary contributions. First and foremost, the values of multiple non-cash donations made to the same charity are added together for the year to determine which rules apply to them. So if you made four separate donations of furniture and clothing to the Salvation Army in the same year, you must add the values of all of them together to see which rules apply. IRS says, "the records you must keep depend on whether your deduction for the contribution is:
1. Less than $250,
2. At least $250 but not more than $500,
3. Over $500 but not more than $5,000, or
4. Over $5,000. "

For donated property with a total value of less than $250, you need a receipt or other written acknowledgment from the organization that states:
1. The name of the charitable organization,
2. The date and location of the charitable contribution, and
3. A reasonably detailed description of the property.

IRS also wants you to write down the original cost of the donated items and their current fair market value. Keep this info with your tax papers at home.
Step 4

For donated property with a total value of between $250 and $499, you must have all the proof listed for the "less than $250" property rules, and some additional requirements apply. The written acknowledgment you receive from the organization:
1. "Must include:
a. A description (but not necessarily the value) of any property you contributed,
b. Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits), and
c. A description and good faith estimate of the value of any goods or services described in (b). If the only benefit you 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.
2. You must get it on or before the earlier of:
a. The date you file your return for the year you make the contribution, or
b. The due date, including extensions, for filing the return."

The section in quotation marks above is a direct quote from IRS.
Step 5

If you donate property totaling a value of $500 or more to a single organization during the year, you will need to file an additional form (Form 8283) with your tax return. Form 8283 simply requires that you list all the previously-mentioned details (required for donations totaling less than $500) on the form, rather than having it written down on a piece of paper that you keep with your tax papers at home. Don't be afraid to use Form 8283.

You can also claim a deduction for out-of-pocket expenses you incur while performing a service for a charity. You may NOT claim a deduction for your time or skills. For example, if you are asked to speak at a fund-raiser or other function where you'll have to furnish your own transportation and hotel costs, you may deduct the actual cost of transportation and hotel (keep the receipts as proof). If you don't want to keep track of your transportation receipts, you'll be stuck taking just 14 cents a mile for the distance to and from your home. Obviously, it pays to keep track of your actual expenses! You must also get a written acknowledgment from the charitable organization, stating the services you provided and whether or not they provided you with any goods or services as reimbursement. If anything other than intangible religious benefit was given to you, the acknowledgment needs to detail items and amounts. Acknowledgment must be dated the earlier of the date you file your return for that year or the due date of that return, including extensions.
Step 6

The total amount of charitable contributions you can deduct in any single year is usually limited to 50% of your Adjusted Gross Income for that year. The limit can be as low as 20% or 30% for certain gifts of capital gains property and gifts to organizations that don't qualify as 50% organizations. Generally, the following types of organizations qualify as 50% organizations according to IRS:
• Churches and conventions or associations of churches.
• Educational organizations with a regular faculty and curriculum that normally have a regularly enrolled student body attending classes on site.
• Hospitals and certain medical research organizations associated with these hospitals.
• Publicly supported charities.
• Private operating foundations.
• Private non-operating foundations that make qualifying distributions of 100% of contributions within 2½ months following the year they receive the contributions.
• Certain private foundations whose contributions are pooled in a common fund, the income and principal of which are paid to public charities.

You can get IRS Publication 78 at the IRS web site (link below) or Google "IRS Tax Exempt Organizations" to find web sites that keep an active list of qualified organizations. You may NOT deduct any donations given to benefit a specific person or persons.

Comments

ruth0046 said

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on 3/28/2009 Very clear article on how to claim a deductions for charitable donations. This was never very clear to me, so I never took the deduction. I may have to consider now. Look forward to your article on how to find a good tax preparer.