Charitable deductions are often treasured by high-income taxpayers who itemize deductions on their personal returns (less people will itemize their 2018 taxes due to new tax law). But your charitable deductions are at risk if you do not have the requisite proof to back up your claims. Worst-case scenario: You are forced to forfeit all or part of your charitable deduction for 2017 if the IRS challenges the write-off. Here is an overview of the most important rules under current law.
Monetary contributions: Deductions for all monetary gifts, regardless of the amount, may be disallowed if the donor does not maintain either a bank record—including a canceled check, bank statement or credit card statement—or a written communication from the charity indicating the donor’s name, contribution amount and date of the contribution. Technically, this covers everything from million-dollar grants made to a college or hospital to the spare change donated during the holiday season.
Contributions of $250 or more: The IRS also requires charitable donors to obtain a written acknowledgment from a charitable organization for gifts of $250 or more. The acknowledgment must be obtained by the time you file your tax return. It should include the amount of the check or cash donated, a detailed description of any property that was donated, and the value of the benefit received if any goods or services were provided. Key exception: You do not have to establish a value for “intangible religious benefits.”
Contributions made through payroll deductions may be substantiated by pay stubs or a Form W-2. Note: Substantiation is not required if the donee organization files a return with the IRS providing the necessary information.
Quid pro quo contributions: If you make a quid pro quo contribution (i.e., a contribution made partially or fully in exchange for goods or services) for an amount above $75, you must obtain a good faith estimate from the charity detailing the value of the benefit received. For example, say you attend a fundraising dinner where the tickets cost $100 apiece and the dinner is valued at $35. The charity must provide a written statement limiting the deductible amount to $65 per ticket.
However, a written statement from a charity is not required if you receive token goods, minimal services or intangible religious benefits in exchange for your donation.
There are a few other key points to keep in mind. For example, if you gave charitable gifts of property exceeding $500 in 2017, additional information must be attached to your tax return. If your donation for noncash property exceeds $5,000, you are also required to provide an independent appraisal of the property’s value. Note: The cost of the appraisal is deductible as a miscellaneous itemized deduction (subject to the usual tax law limits for miscellaneous expenses).
These recordkeeping rules will keep you on your toes. However, as long as you have the proper documentation, you should be able to claim legitimate deductions on your 2017 return. Seek assistance from a JMF tax professional.