Charitable Contributions – Does Your Client Have the Proper Documentation?
Generally, the deduction for charitable contributions is limited to 50 percent of your client’s adjusted gross income, but in some cases, 20 percent and 30 percent limits may apply.
To be deductible, charitable contributions must be made to qualified organizations and not set aside for use by a specific person. Payments to individuals are never deductible.
If your client received a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your client’s contribution that is more than the value of the benefit the client received.
So, if your client’s contribution entitled them to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.
Your clients must keep adequate records to prove the amount taken. Contributions of $250 or more to any single charity requires your client to have written acknowledgment of the contribution before claiming a charitable contribution.
The written acknowledgement must be contemporaneous, meaning the donor needs to obtain the acknowledgment from the charity on or before the earlier of the date the return is filed or the due date of the return (including extensions).
The charity’s acknowledgment or written statement needs to contain the following information:
- Name of organization.
- Amount of cash contribution.
- Description (but not the value) of noncash contribution.
- Statement that no goods or services were provided by the organization in return for the contribution, if that was the case.
- Description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution.
- Statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.
An organization that does not acknowledge a contribution incurs no penalty. However, without a written acknowledgment, your client cannot claim the tax deduction.
A contribution over $500 requires IRS Form 8283, Noncash Charitable Contributions, to be filled out and filed with the return. If your client claims a deduction for a contribution of noncash property worth more than $5,000, your client will need a qualified appraisal of the noncash property.
If your client claims a deduction for a contribution of noncash property worth more than $500,000, you need to attach the qualified appraisal to their return.For more information on charitable contributions and documents needed to substantiate deductions, see the IRS Publication 526, Charitable Contributions, also IRS Publication 1771, Charitable Contributions Substantiation and Disclosure Requirements.