How can you determine if you’re allowed to claim a charitable deduction for amounts you paid to support your favorite charities? And what paperwork do you need in hand before you can claim that charitable deduction? Here are five ways to observe the requirements for charitable gifts of cash.
1. Do your homework on the recipient. Make sure you are claiming deductions only from qualified non-profit organizations under the tax code’s section 501(c)(3). If you are unsure whether an organization is qualified, call the organization or do your research online. The IRS has a link that allows the public to confirm whether an organization falls within section 501(c)(3), as does Guidestar.org. Note, donations to funds set up to help specific individuals in need, like GoFundMe, are most probably not tax deductible because the fund is not a qualified organization.
2. Report and record-keep in the right way. So you’ve confirmed the tax-exempt status of the organization that received your gift. What must you do next to achieve the added benefit of a tax deduction? For monetary gifts and out-of-pocket expenses, the rules are relatively straightforward. When you give a charitable gift of cash, the IRS wants you to obtain – within a limited timeframe – adequate information confirming the amount of the gift, the organization to which it was made, and in, some cases, whether goods or services were exchanged in connection with that gift. Specifically, all charitable receipts must be in hand by the earlier of the date you file your return and the due date of your return, including extensions. Written acknowledgements received by these dates will be considered “contemporaneous.” The IRS has published guides [here and here] to help taxpayers with the various substantiation and disclosure requirements. Below are the highlights regarding cash gifts.
One-Time Cash Gifts
For each gift under $250
- You must retain in your records at least one of the following:
- Canceled check;
- Bank statement;
- Credit card statement; or
- Contemporaneous receipt from the charity.
For each gift of $250 or more
- In addition, you must have a contemporaneous note from the charity detailing:
- Amount contributed; and
- Whether the charity provided you any goods or services in exchange for the gift, with a description and value, of any such goods or services, except when the goods and services are insubstantial in value such as a tchotchke with a logo or a benefit stemming from a low-cost annual membership.
- Requirement easily missed: when a taxpayer has contributed cash to the family foundation she created, she must obtain the note from her foundation.
- You must retain in your records:
- Pledge card from the charity and, if a single contribution is $250 or more, the pledge card should provide that no goods or services were received in exchange for your gift; and
- W-2 or paystub reflecting your gift.
For each unreimbursed expense under $250
- For unreimbursed out-of-pocket expenses you incurred while volunteering for a charity, such as mileage and travel expenses, you must keep in your files reliable and contemporaneous written records with:
- Name of the charity;
- Date of the expense incurred; and
- Amount of the expense.
- Distinction easily missed: the standard mileage rate for charitable purposes (14 cents per mile in 2015) is lower than that for business purposes.
For each unreimbursed expense of $250 or more
- In addition, you must have a contemporaneous receipt from the charity detailing:
- Description of your services; and
- Whether the charity provided you any goods or services as reimbursement, with a description and value of any such reimbursement.
3. Remember that not all forms of support are deductible. There is a common misconception that everything you do for charity carries a tax benefit with it. This is simply not true. For example, you cannot claim a charitable deduction for the following:
- Value of your time or services donated to a charity;
- Cost of raffle or lottery tickets to support a charity; or
- Tuition payments.
4. Take responsibility. You bear the burden of proving that a charitable contribution meets the criteria for a deduction. While these may seem like small details, the IRS expects you to meet all substantiation requirements if you are claiming a deduction for a charitable contribution. The IRS has repeatedly disallowed deductions for donations, even when it is clear that the charity received the funds, when the taxpayer’s substantiation failed to meet IRS standards.
5. Do a little each time you give. It is much easier to keep up with the substantiation requirements if you can do your due diligence each time you make a charitable contribution. Try to maintain up-to-date, organized records of your charitable contributions throughout the year. You’ll be thanking yourself when next tax season rolls around.
Julia Satti Cosentino is a partner in the Nutter's Private Client Department and co-chair of the Nonprofit and Social Impact practice group. She is experienced in complex estate and tax planning, probate and trust administration ...
John A. McBrine is a partner in Nutter’s Private Client Department and a member of the Nonprofit and Social Impact practice group. Families and individuals rely on John to help them achieve a broad range of estate planning goals ...
TaraLynn A. Casperson is an associate in Nutter’s Private Client Department. Clients rely on TaraLynn’s counsel in a variety of areas, including straightforward estate planning for young families to more sophisticated plans ...
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No two families are exactly alike, but all family members share common opportunities and challenges as they seek to take care of each other and leave a lasting legacy the next generation can build on. In this blog, the experienced attorneys in Nutter's Trusts and Estates and Nonprofit and Social Impact Advisors groups offer news and insights for individuals, couples and multi-generational families who are looking to convey wealth (and its responsibilities) to children and grandchildren, make a philanthropic impact in the community and prepare for the life events we all can face.