It is that Time of Year Again — Time to Ask about Charitable Contributions
The end of each year is a time when people often make charitable contributions. If your client was one of those generous individuals, they may qualify for a tax deduction if they made the gift or contribution to a qualified organization. Payments to individuals are never deductible. To determine if the organization that your client contributed to qualifies as a charitable organization for income tax deductions, review Exempt Organizations Select Check on the IRS.gov website.
Charitable contributions are deductible only if the individual client itemizes deductions on their federal Form 1040, Schedule A, and your client has 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
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 tax return is filed or the due date of the tax return (including extensions).
The charity’s acknowledgment, 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 the organization did not provide goods or services 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 noncash contribution of over $500 requires IRS Form 8283, Noncash Charitable Contributions, to be filled out and filed with the tax 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 is claiming a deduction for a contribution of noncash property worth more than $500,000, you need to attach the qualified appraisal to their tax 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.