The United States tax code recognizes the need for qualified organizations to reach out to taxpayers to help fund their nonprofit activities. And in return, these patrons receive the right to deduct such charitable gifts on their tax returns.
But, the tax code also has very strict rules regarding charitable deductions. So, to ensure you don’t lose any deductions, adhere to IRS guidelines and tax law requirements.
Substantiating gifts of cash
You can substantiate cash donations of less than $250 with a canceled check, a receipt from the charity or another reliable written record that shows the name of the charity and the date and amount of your contribution. Separate contributions of less than $250 to a single charity aren’t combined in determining whether you exceeded the $250 threshold. So, for example, if you donate $200 a month to a charitable organization, you can substantiate each donation with a canceled check.
Donations of $250 or more require a contemporaneous written acknowledgment from the charity describing the amount of your contribution and any goods or services you received from the charity in exchange for the donation.
An acknowledgment is contemporaneous if you receive it on or before the earlier of either your tax return due date, including extensions, for the tax year the contribution is made or the date you actually file your return. It’s critical to make sure you obtain all necessary acknowledgments before you file your return. If you don’t, you could lose the deduction, even if you receive a valid acknowledgment later.
How the IRS treats noncash gifts
For noncash gifts under $250, obtain a receipt that shows the charity’s name, the date and location of the contribution, and a description of the property. Although the property’s fair market value should be considered in determining the amount of detail included in the receipt, that value need not be stated on the receipt.
Noncash gifts of $250 or more require a contemporaneous written acknowledgment from the charity containing the information described above for cash gifts as well as a description (but not necessarily the value) of the property.
If you donate noncash property worth more than $500, then, in addition to the substantiation requirements described above, you also must maintain written records that document:
The date (approximate is permissible) you acquired the property,
The manner in which you acquired the property (for example, via purchase, gift or inheritance), and
Your adjusted basis in the property. (There is an exception for property you’ve held for at least 12 months, and for publicly traded securities.)
If your noncash gifts for the taxable year exceed $500, you also must prepare and file IRS Form 8283 ("Noncash Charitable Contributions"). Note that the $500 threshold is an aggregate of all noncash contributions; it’s not an entity-by-entity calculation.
Rules for large noncash gifts
If you donate property valued at more than $5,000 ($10,000 for closely held stock), you must acquire a qualified appraisal and include an appraisal summary, signed by the appraiser and the charity, on Form 8283. You can meet the $5,000 threshold by donating a single item or a group of similar items, even if you give them to different charities.
You don’t need an appraisal for publicly traded securities. For closely held stock worth more than $5,000 but less than $10,000, an appraisal isn’t required, but you need to complete a portion of the appraisal summary form.
For noncash contributions exceeding $500,000 or gifts of art worth $20,000 or more, include a copy of the signed appraisal — not simply the summary — with your return. Note that there are limited exceptions for certain items, even if they exceed the $500,000 threshold.
Your appraisal must be prepared, signed and dated by a qualified appraiser, as defined by IRS regulations, and must include specific information required by the regulations. The appraisal can’t involve a prohibited appraisal fee and has to be prepared no earlier than 60 days before the property is contributed and no later than the tax return due date, including extensions.
Your tax advisor can help
The IRS keeps a wary eye on taxpayers’ charitable cash and noncash donations to ensure they’re abiding by the rules. That’s why it’s critical to work with your tax advisor. He or she can help ensure your donations are in line with the United States tax code.
If you have any questions regarding this article, please contact Friedman LLP at firstname.lastname@example.org or 877-538-1670.