Charitable giving can represent a significant tax savings strategy. So much so, that the IRS is placing increased emphasis on ensuring that taxpayers have the necessary documentation to substantiate these deductions. And they’re serious. They are disallowing deductions in their entirety if they are not supported with the proper documentation. Find out what you need to claim charitable deductions.
When do I need to obtain a letter?
If you’re planning to make a charitable contribution and wish to claim it as a deduction on your taxes you need to be aware of the requirements. Any donation of cash or property with a value of $250 or more requires a contemporaneous written acknowledgement of that gift from the charity. And if you should make more than one contribution of $250 or more in a given year, you should get one or more written acknowledgements from the charity to satisfy your obligations.
If you make separate contributions of less than $250, they do not require a written acknowledgement even if–over the course of a year–they add up to $250 or more. However, conservatively you should always ask for written substantiation–just in case.
What needs to be in the letter?
It’s important that the written acknowledgement from the charity provide the following information:
- The amount of cash and a description (but not a value) of any property you donated
- A statement as to whether the charity provided you with any goods or services in return for the donation, and a good faith estimate of their value if it did
- If the only goods or services provided by the charity consisted of intangible religious benefits, a statement to that effect
If the charity did not provide any goods or services in return for your donation, the acknowledgement must say that. Some charities fail to include such a statement, and this omission can cause your deduction to be disallowed. Be sure to request an acknowledgement that expressly states that no goods or services were provided in return for your donation.
Additional value requires additional requirements
Larger deductions, especially of property, may require additional substantiation of the donation, including an appraisal valuing the property and providing certain information required by the IRS. Failure to obtain this additional substantiation can also result in the disallowance of a charitable deduction.
What about payroll deductions and out-of-pockets?
Donations made through payroll deductions and unreimbursed out-of-pocket expenses incurred while performing services for a charity will also require written acknowledgements from a charity where the payroll deduction or unreimbursed expenses are $250 or more.
When should you obtain the written acknowledgement?
Be aware that there is a deadline! You must obtain the written acknowledgement by the earlier of the date on which you file a tax return claiming the deduction or the due date for that return, including extensions. Miss the deadline, and you’ll miss the deduction!
If you have Ayco as a benefit, ask your Ayco advisor for the unique content requirements of charitable contribution substantiation letters.
