Charitable Contributions Require Thorough Documentation

The Internal Revenue Service (IRS) rewards generosity by making contributions to qualified charities and non-profit groups tax deductible. But be warned; for all contributions, no matter the size, you must follow the rules and provide thorough documentation.

The requirements differ depending on the size of the contribution. For example, less documentation is required for donations of less than $250. But for contributions of between $250 and $500, you must provide more documentation in order to claim a deduction. The level of documentation rises with the amount of the deduction claimed.

Although you cannot deduct the value of time you spent volunteering, you can deduct travel expenses you incurred while performing volunteer services away from home, as long as no significant part of the trip was spent for personal pleasure, vacation or recreation.

Giving money is simplest

If your contribution is in cash, then documentation is fairly straightforward. For a contribution of cash, check, or other monetary gift -- regardless of amount -- you must maintain as a record of the contribution a bank record or a written communication from the qualified organization containing the name of the organization, the date of the contribution, and the amount of the contribution.

But it is donations of noncash items where taxpayers sometimes get into trouble. Even if the amount of the deduction is less than $250, you must obtain a receipt or letter showing the organization name, location, donation date, and item description.

You must also keep a written record of:

• The name and address of the organization receiving the contribution

• The date and location of the contribution

• A detailed description of the property

• The fair market value of the property at the time of contribution, and how you determined it

• What the property actually cost you

• Whether there were any terms to your donation

As the level of contribution rises, you must meet the above requirements, and more. If your donation of noncash items is more than $500 but less than $5000, you must fill out Form 8283, Section A. If you claim a deduction for a contribution of noncash property worth more than $5,000, you will need a qualified appraisal of the noncash property and must fill out Form 8283, Section B. The qualified appraisal must be from an individual or organization in a position to know the market value of our contribution.

If you claim a deduction for a contribution of noncash property worth more than $500,000, you also will need to attach the qualified appraisal to your return.

Also, make sure your contribution went to a qualified organization before trying to claim it as a charitable deduction. The contributions can be monetary, or physical property. Qualified charitable contributions are deductible as an itemized deduction.

Qualified Organizations

Qualified organizations can be public or private foundations. Organizations will be able to tell you whether they are considered a qualified organization for tax purposes. Keep in mind there are limits on deductible donations and the limit is greater for public organizations.

Qualified organizations include:

• Corporations, trust  funds, community chests, and foundations organized and operated for literary, religious, educational, or scientific reasons, and the prevention of cruelty to animals or children

• Fraternal orders, associations, and societies when the contribution received will be used for literary, religious, educational, or scientific reasons, and the prevention of cruelty to animals or children

• Posts and organizations of war veterans

• Non-profit hospitals and schools

• Churches, synagogues, temples, mosques, or other religious organizations

You may not deduct the following:

• Donations made to specific individuals (You may donate to victims of a flood, but not specific victims)

• Donations made to political organizations or candidates

• Donations made from an IRA distribution

• The value of time you spent volunteering

• The cost of playing games of chance, including raffles and bingo

• Any contribution from which you receive or expect to receive a financial or economic benefit of equal value

That means if you purchased a raffle ticket on a new car, given away at a local charity fundraiser, the cost of the ticket is not tax deductible.

Limits

The ability to write off charitable contributions is not unlimited. The overall limitation of charitable contributions is 50 percent of your adjusted gross income (AGI). If your contributions exceed this limit in a given tax year, you can deduct the remainder of your contributions over the next five tax years.

Also, if you receive any type of benefit from a contribution that you make, you must reduce the contribution amount by the fair market value of the benefit you received.  For example if you pay $50 to attend a church luncheon, and the fair market value of the lunch is $15, you can only deduct $35 as a charitable contribution.

If you plan on claiming charitable contributions this tax season, it's a good idea to review IRS Publication 526, which deals with the issue in a comprehensive way. The bottom line, say tax preparers, is to thoroughly document any charitable contribution you claim as a deduction, because you will be asked to provide that documentation should there be an audit.