What’s the biggest tax deduction on your 2018 return? For many itemizers, it is the write-off for charitable donations on Schedule A. But these deductions are not automatic if you do not have the proper records to back up your claims. Here are several important reminders for this year’s tax filing season.
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 cancelled 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 spare change donated during the holidays. Note: Under the Tax Cuts and Jobs Act (TCJA), the deduction limit for monetary contributions is increased from 50% of adjusted gross income (AGI) to 60% of AGI for 2018 through 2025.
Contributions of $250 or more: The IRS also requires charitable donors to obtain a written acknowledgement from a charitable organization for gifts of $250 or more. The acknowledgement 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. However, you don’t 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 recipient organization files a return with the IRS providing the information to be included in an acknowledgement.
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 fund-raising dinner where the tickets cost $100 apiece and the dinner is valued at $40. The charity must provide a written statement limiting the deductible amount to $60 per ticket. But 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 several other key points to keep in mind. For example, if you gave charitable gifts of property exceeding $500 in 2018, additional information must be attached to your tax return. If your donation for non-cash property exceeds $5,000, you must also provide an independent appraisal of the property’s value. Note: Previously, such an appraisal was deductible as a miscellaneous expense, but the TCJA repeals miscellaneous expense deductions for 2018 through 2025.
In summary: The recordkeeping rules for charitable donations are tough. However, if you have the proper documentation, you still may be able to claim top-dollar deductions on your 2018 return.