Documenting Your Gifts to Charity: Don’t Jeopardize Your Charitable Deduction
April 15th is fast approaching. This is the time of year when many of our clients ask us how to properly document charitable contributions. In several recent cases, donors have been denied all or a portion of their charitable deduction due to their failure to meet strict documentation requirements. Your responsibilities as a donor do not end with making a gift. Here are some general guidelines to protect your ability to deduct the full value of your gifts to charity:
Keep Records of Contributions of Cash, Check or Other Monetary Gifts
This is the most common type of contribution made by donors and received by charities. It is the donor’s obligation to keep and maintain written records of their charitable contributions, regardless of the amount gifted. Such records can include cancelled checks, bank statements or credit card statements showing: (i) the name of the charity, (ii) the amount donated and (iii) the date of the contribution.
For donations of $250 or more, donors must ensure that they receive a written acknowledgement of their gift from the charity. This acknowledgement must include the charity’s name, the date and amount of the contribution, and whether any goods or services were received in exchange for the donation. Special rules apply when charities provide goods and services to a donor (such as merchandise, tickets to a sporting event, dinner and entertainment at a gala, etc.). Generally, the charity must advise the donor in writing of the dollar value of the goods and services provided. Donors must deduct the value of the goods and/or services from the amount of the monetary gift to determine the amount of their charitable deduction.
Many charities use social media as a way to raise funds, such as through text message donations and Facebook pages. Facebook and other social media donations should be substantiated by a credit card or bank statement, depending on method of payment, showing the information listed above. For text message donations, a telephone bill showing the donation is a sufficient record if it shows the same information. Again, a written acknowledgement from the charity, as described above, is required for donations of $250 or more.
Keep Records of Non-cash Contributions
Often donors want wish to make gifts of property, such as stock, vehicles, clothing, electronic equipment and other household items. Your charitable deduction for donated property is generally equal to the fair market value of the property. Donated personal property such as clothing, appliances, electronics and furniture must generally be in good used condition or better. It is the responsibility of the donor to determine the value of their gifts.
The IRS offers some guidance on determining the value of personal property items in Publication 561: http://www.irs.gov/publications/p561/ar02.html#d0e579. If the claimed value of the gift is $250 or more, donors must obtain a written acknowledgement from the charity, as described above, which also includes a description of the donated property.
Donations of motor vehicles, boats, and airplanes are permissible, but subject to stringent IRS requirements. Recordkeeping and filing requirements depend on the amount of your claimed deduction. The IRS has developed a publication on this topic, and you can find more details on donating a vehicle at: http://www.irs.gov/pub/irs-pdf/p4303.pdf.
If the value of donated property exceeds $5,000 you must obtain a “qualified appraisal”. There are highly detailed laws and regulations regarding qualified appraisals, and you should seek legal advice if you intend to or have made a gift of property having a value above $5,000. An important exception to the qualified appraisal requirement is gifts of marketable securities.
Confirm the Charity’s 501(c)(3) Status
For contributions to be deductible, the charity you donate to must be a “qualified organization”. Many charities provide this information to donors in the acknowledgement letter described above. To confirm that the charity you may donate to or have donated to is a qualified organization, you can check the IRS database at: http://apps.irs.gov/app/eos/.
Donations of Services
Another important contribution you can make to any charity is the gift of your time. Unfortunately, a charitable deduction is not available for the value of your volunteered time or services. However, you can deduct out-of-pocket, unreimbursed expenses incurred while performing services for a charity. For example, deductible expenses include costs for postage; purchased materials for building homes damaged by flooding; travel expenses, 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 any out-of-pocket expenses and written correspondence from the charity with a description of the services provided and the date the services were performed.