Substantiating (or Proving to the IRS) Charitable Contributions
A few weeks back, this space discussed the benefits of being a generous person and my article "The Benefits of Generosity", and of course, part of that discussion was about being financially generous by donating to charity.
To encourage such generosity, the tax code incentivizes donations to qualified charitable organizations by allowing tax deductions for donating not only money, but also other property. To benefit from this incentive, you must be someone who (1) itemizes your deductions (as opposed to taking the standard deduction the law allows everyone) and (2) meet the substantiation rules the law requires for "proving" the legitimacy of the donation.
Long gone are the days of dropping some cash into the plate at your place of worship, the Salvation Army bucket, etc., and then taking a deduction for the amount contributed. This is because the law requires what it terms "adequate records" in order to take a deduction, and unfortunately, your simple word that you did so isn't "adequate" enough.
What follows is a basic primer regarding these substantiation rules for those who wish to deduct their donations.
Donations of Less than $250
To deduct donations at this monetary level, you must have what the IRS calls "adequate" records. For money, this means something that shows the charity name, date and amount. Thus, why simply saying you donated cash isn't generally enough. A cancelled check or credit card record will work just fine at this level, meaning no actual receipt is required. Additionally, if the donation is noncash, the record must show the location and description of what was donated.
Donation of $250 or More
At this level, the tax law ups the ante a bit because you now must have an actual receipt from the charity and said receipt must meet certain requirements. Briefly stated, these requirements are:
- It must state the amount of money given or give a description of donated property;
- It must say whether or not any goods or services were provided by the charity in exchange for the donation, and if they were provided, give a description and good faith estimate of the value of same.
- The receipt must be "contemporaneous" meaning it has to be obtained by the earlier of the date you file your return or the due date of the return, including extensions. Note, receipts for the donation of a vehicle are different, and must be obtained within 30 days of the donation.
Donations of Property Valued at Over $500
When donating property valued over $500, the law requires additional substantiation as required by Treasury regulations. Such regulations refer us to Form 8283 and the related instructions for further information.
Generally speaking, donations of most property valued less than $5,000 must simply be reported on Form 8283, showing the charity's identifying information, when and what was donated, how it was acquired, what value you assign to it and what said value is based upon (i.e., thrift shop value, comparable sales, etc.). Donations of publicly traded securities, by the way, are valued based on information obtained from securities exchanges.
Once the value of donated property exceeds $5,000, even more additional requirements kick in. For example, such donations generally require a qualified appraisal to be obtained that supports the value being claimed. In certain circumstances, this appraisal must be attached to the return, although I generally think it's a good idea to do that anyway, even if attachment isn't specifically required. Also, the instructions require that Form 8283 be signed by an authorized official of the charity in such a case.
Finally, bear in mind that there is an aggregation rule that applies for donations of property above the $500 and $5,000 thresholds. This rule requires you to aggregate donations of "similar items of property" to "one or more" charities. In other words, you can't get around the more comprehensive requirements simply by dividing the donation up into smaller chunks!
By necessity, what I have spelled out above is a broad and very general explanation of the substantiation requirements. If you are contemplating making major contributions or one that may be somewhat out of the ordinary, you would do well to speak to a professional tax advisor or at least at a minimum consult the breadth of information to be gleaned from the form and publication referred to above.
Uncle Sam stands ready to subsidize your generosity, but only if you meet his requirements!