Over the past few years, Americans have collectively donated more than $350 billion to charity with much of those donations coming from individuals. While charitable giving offers a chance to make a difference, there are also tax benefits associated with this philanthropic activity; however, the IRS may require substantiation for the charitable contributions depending on the nature of the donation. For instance, if the contribution is $250 or more, you will need a written receipt from the charity. If you donate property valued at more than $500, additional requirements will apply.
General Rules for Charitable Contributions
For a contribution of cash, check, or other monetary gifts, regardless of amount, you must maintain a bank record or a written communication from the donee organization showing its name, the date, and the amount of the contribution. Any other type of written record, such as a log of contributions, is insufficient.
For a contribution of property other than money, you generally must maintain a receipt from the donee organization that shows the organization’s name, the date, and the location of the contribution, as well as a detailed description of the property (but not the value).
If the contribution is worth $250 or more, stricter substantiation requirements apply. No charitable deduction is allowed for any contribution of $250 or more unless you substantiate the contribution with a written receipt from the donee organization. You must have the receipt in hand when you file your return or you will not be able to claim the deduction. If you make separate contributions of less than $250, you will not be subject to the written receipt requirement, even if your contributions to the same charity total $250 or more in a year.
The receipt must set forth the amount of cash and a description of any property other than cash contributed. It must also state whether the donee provided any goods or services in return for the contribution and if so, must give a good-faith estimate of the value of the goods or services.
For donated property with a value of more than $5,000, you are generally required to obtain a qualified appraisal and to attach an appraisal summary to the tax return.
Recordkeeping for Charitable Contributions for Which You Receive Goods or Services
If you receive goods or services, such as a dinner or theater tickets in return for your contribution, your deduction is limited to the excess of what you gave over the value of what you received.
If you contributed more than $75 for which you received goods or services, the charity must give you a written statement, either when it asks for the donation or when it receives it, that tells you the value of those goods or services. Be sure to keep these statements.
Substantiating Out-of-Pocket Costs
Although you cannot deduct the value of services you perform for a charitable organization, some deductions are permitted for out-of-pocket costs you incur while performing the services. You should keep track of your expenses, the services you performed, when you performed them, and the organization for which you performed the services. Keep receipts, canceled checks, and other reliable written records relating to the services and expenses.
As discussed above, a written receipt is required for contributions of $250 or more. This presents a problem for out-of-pocket expenses incurred while providing charitable services since the charity does not know how much those expenses were. However, you can satisfy the written receipt requirement with adequate records that substantiate the amount of your expenditures including; a statement from the charity that contains a description of the services you provided, the date the services were provided, a statement of whether the organization provided any goods or services in return, a description of goods or services, and a good-faith estimate of the value of those goods or services.
See below for a quick reference chart summarizing the substantiation requirements.
Please contact us if we can be of assistance with this or other tax planning matters.
About the Author
Jonathan Louie, CPA, MST, Director
Tax, Real Estate, 1031 Exchange
Jonathan is a Tax Director at KROST. Jonathan has over 14 years of experience in public accounting. Jonathan’s areas of expertise include federal and multi-state tax compliance and consulting for high net worth individuals, partnerships, and corporations. He services clients in various industries including but not limited to the Real Estate, Restaurant, medical, and Entertainment industries. » Full Bio