Taxpayers who itemize deductions are entitled to deduct charitable donations, subject to certain requirements and limitations. One of the requirements is the need to substantiate charitable gifts with documentation that satisfies the tax code and IRS regulations.

This is an area where the IRS takes a “form over substance” approach. A charitable gift may be perfectly legitimate, but if the taxpayer fails to substantiate it properly, the deduction may be lost. Here’s a brief overview of the substantiation requirements.

 

Cash donations

Cash donations, regardless of the amount, must be substantiated with one of the following:

Bank records. This can include bank statements, electronic fund transfer receipts, canceled checks (including scanned images of both sides of a check from the bank’s website) or credit card statements; or

Written communication. This can be in the form of a letter or email from the donor organization, showing the donee’s name, date of the contribution and the amount of the contribution. A blank pledge card furnished by the donee isn’t sufficient.

In addition to the above, cash donations of $250 or more require a contemporaneous written acknowledgement (CWA) from the donee that details the following:

  • The amount of the contribution, and
  • A description and good faith estimate of the value of any goods or services provided in consideration (in whole or in part) for the donation.

A single document can be used to meet both the written communication and CWA requirements. For the CWA to be “contemporaneous,” you must obtain it by the earlier of 1) the extended due date of your tax return for the year the donation is made, or 2) the date you file your return.If you make charitable donations via payroll deductions, you can substantiate them with a combination of an employer-provided document — such as Form W-2 or pay stub — that shows the amount withheld and paid to the donee, and a pledge card or similar document prepared by or at the direction of the donee showing the donee’s name.

For a donation of $250 or more by payroll deduction, the pledge card or other document must also state that the donee doesn’t provide any goods or services in consideration for the donation.

 

Noncash donations

Noncash donations of less than $250 must be substantiated with a receipt from the donee showing the donee’s name and address, the date of the contribution, and a detailed description of the property. For noncash donations of $250 or more, there are additional substantiation requirements, depending on the size of the donation:

  • Donations of $250 to $500 require a CWA.
  • Donations over $500, but not more than $5,000, require a CWA and you must complete Section A of Form 8283 and file it with your tax return. Section A includes a description of the property along with its fair market value and the method of determining that value.
  • Donations over $5,000 require all the above, plus you must obtain a qualified appraisal of the property and file Section B of Form 8283 (signed by the appraiser and the donee). There may be additional requirements in certain situations. For instance, if you donate art of $20,000 or more, or if any donation is valued over $500,000, you must attach a copy of the appraisal to your return. Note: No appraisal is required for donations of publicly traded securities.

Additional rules may apply for certain types of property, such as vehicles, clothing and household items, or securities.

 

Complex rules

The regulations on the substantiation of charitable donations are complex, and one misstep can cause you to lose valuable tax deductions. When in doubt, consult your tax advisor to ensure that you’re properly following all the rules.

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