In a news release, IRS has reminded individuals and businesses making year-end charitable contributions of several important tax law provisions, including substantiation requirements, that they should keep in mind.
Eligible donees. Only donations to qualified organizations are tax-deductible. IRS’s “Select Check” tool is a searchable online database that lists most eligible charitable organizations; it can be found at irs.gov/charities-non-profits/exempt-organizations-select-check. Churches, synagogues, temples, mosques and government agencies are also eligible to receive deductible donations, even if they are not listed in this database.
Itemize to claim charitable donations. For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. Thus, individuals who choose the standard deduction, including those who file a short form (i.e., Form 1040A or 1040EZ), are ineligible to claim the deduction. A taxpayer will itemize only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. IRS provides help in determining whether itemizing is better than claiming the standard deduction, see irs.gov/individuals/parents/should-i-itemize
Monetary donations. To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution, see irs.gov/charities-non-profits/charitable-organizations/charitable-contributions-written-acknowledgments. Money donations can include various forms apart from cash such as check, electronic funds transfer, credit card and payroll deduction. Taxpayers using payroll deductions should retain a pay stub, a Form W-2 (Wage and Tax Statement) or other proof showing the total amount withheld for charity, along with the pledge card showing the name of the charity. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donation of clothing and household items. To be deductible, clothing and household items donated to charity must be in good used condition or better. A clothing or household item (e.g., furniture, furnishings, electronics, appliances, and linens) for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Donors must get a written acknowledgment from the charity for all gifts worth $250 or more that includes, among other things, a description of the items contributed, see
irs.gov/charities-non-profits/substantiating-charitable-contributions. Special rules apply to cars, boats and other types of property donations, see irs.gov/pub/irs-pdf/p4303.pdf. IRS has information to help taxpayers determine the value of donated property, see irs.gov/forms-pubs/about-publication-561
Benefits received by donor. Donors who get something in return for their donation (also called quid pro quo) may have to reduce their deduction. Benefits can include merchandise, meals, tickets to an event, or other goods and services. A donation acknowledgment must state whether the organization provided any goods or services in exchange for the gift along with a description and estimated value of those goods or services, see irs.gov/charities-non-profits/charitable-organizations/charitable-contributions-quid-pro-quo-contributions
Older IRA owners. IRA owners age 70½ or older can transfer up to $100,000 per year to eligible charities tax-free. The transfer can count as their required minimum distribution (RMD) for the year. Funds must be transferred directly by the IRA trustee to the eligible charity, see irs.gov/pub/irs-pdf/p590b.pdf
Required records. As noted above, the type of records a taxpayer needs to keep depends on the amount and type of the donation. An additional reporting form is required for many property donations, and an appraisal is often required for larger donations of property, see irs.gov/charities-non-profits/contributors/written-record-of-charitable-contribution
For more guidance on tax deductible donations to charitable organizations, contact Richard Scoresby.