April 15th is just around the corner, and every year clients ask us what paperwork is needed to document charitable contributions. As a reminder, the IRS allows you to deduct up to 50% of your adjusted gross income donated to qualified IRC §501(c)(3) charitable organizations (commonly referred to as “charities”) for those taxpayers who itemize their deductions. To ensure your ability to deduct the value of your contributions, we offer the following tips:
Keep Records of Contributions of Cash, Check or Other Monetary Gifts
Monetary contributions provide core funding for many charities. Such funding is the most common type of contribution made by donors and received by charities. It is the taxpayer's obligation to keep and maintain written records of their charitable contributions irrespective of the amount of their donations. Records can include a cancelled check, a monthly bank statement, or a credit card statement showing the amount of the contribution. For contributions of $250 or more, you should ensure you receive correspondence from the charity that specifies its name, the date and amount of your contribution, and whether any goods or services were received in exchange for the donation.
Today charities are more frequently turning to social media as a way to raise funds through text message donations and Facebook pages. For text messages, a telephone bill showing the donation is a sufficient record if it shows (i) the name of the charity, (ii) the amount donated, and (iii) the date of the contribution. Credit card donations should be substantiated by a credit card statement showing these same three pieces of information.
There are special tax rules applicable to charities that provide goods and services to a donor (such as merchandise, tickets to a sporting event, dinner and entertainment at a gala, etc.). In such cases, the charity must advise the donor in writing of the dollar value of the goods and services received. The law requires that you deduct the value of the goods and/or services from the amount of your total monetary gift before claiming a deduction.
Keep Records of Non-cash Contributions
Often donors want to makes gifts of property, stocks, clothing, electronic equipment and other household items. Donated property and stock is typically valued at its fair market value, but in some instances requires a qualified appraisal to support the amount of the donation. Donated personal property such as clothing, appliances, computers and furniture must generally be in good used condition or better. Typically, charities accepting personal property from taxpayers do not provide a fair market value for the used, donated items and it is the responsibility of the taxpayer to determine value.
Donations of motor vehicles are permissible, but subject to stringent IRS requirements. Recordkeeping and filing requirements depend on the amount of your claimed deduction for the vehicle. The IRS has developed a publication on this topic, and you can find greater details on donating a vehicle at http://www.irs.gov/pub/irs-pdf/p4303.pdf.
Confirm the Charity’s 501(c)(3) Status
For contributions to be deductible, the charity you donate to must be a “qualified organization” in the eyes of the IRS. Many charities provide this information to donors in an acknowledgement letter. To assure yourself that the charity you have donated to or want to donate to is a qualified organization, you can check the IRS database at http://apps.irs.gov/app/eos/. Although you can also search this database by the name of the charity, it is helpful to have the charity’s EIN number (typically on the charity’s acknowledgement letter or its website) to conduct your search.
Several nonprofit groups maintain comprehensive databases about charities. These databases typically include the charity’s annual tax filing (referred to as the Form 990), how the charity allocates funds to programs and administration, how transparent the charity is, and other programmatic information. This information can be accessed at www.guidestar.org or www.charitynavigator.org. Note these organizations’ websites will provide more detailed information about a charity for a fee.
Donations of Services
Perhaps the greatest contribution you can make to any charity is your time. Unfortunately, there are no deductions available for the value of your volunteered time or services. However, donors can deduct out-of-pocket expenses while performing services for a charity. For example, deductable expenses include costs for postage; materials for building homes damaged by flooding; travel expenses including gas and mileage as long as there is no significant element of personal pleasure, recreation, or vacation in the travel; and mileage for traveling to and from your volunteer commitments.
Your records should include: written receipts of the out-of-pocket expenses to substantiate your donation, written correspondence from the charity regarding the description of the services provided, the date of services performed, and a reasonable, good-faith quantification of the expenses and services.
Farella’s Tax Exempt Organizations Practice Group is here to support your philanthropic giving. Please feel free to contact your Farella attorney, Deb Tellier or any other member of our Group with any questions you have regarding the requirements for deducting charitable contributions.