United States: Act Now To Preserve Your 2015 Charitable Deductions

5 Ways to Be Diligent with Charitable Gifts of Cash

Remember that formal benefit dinner you attended last fall? The contentious battle for that golf package at the charity auction in the spring? Your donation to the bike-a-thon over the summer? For many, expenditures like these can add up to hundreds, even thousands, of dollars throughout the year. But – surprise! – income tax deductions are not always available or can easily be lost if you are not diligent about your recordkeeping. With the April 15th deadline to file (or extend) income tax returns fast approaching, many of us need a reminder of what is required to claim income tax deductions for the charitable contributions of cash we made last year.

How can you determine if you're allowed to claim a charitable deduction for amounts you paid to support your favorite charities? And what paperwork do you need in hand before you can claim that charitable deduction? Here are five ways to observe the requirements for charitable gifts of cash.

1. Do your homework on the recipient. Make sure you are claiming deductions only from qualified non-profit organizations under the tax code's section 501(c)(3). If you are unsure whether an organization is qualified, call the organization or do your research online. The IRS has a link that allows the public to confirm whether an organization falls within section 501(c)(3), as does Guidestar.org. Note, donations to funds set up to help specific individuals in need, like GoFundMe, are most probably not tax deductible because the fund is not a qualified organization.

2. Report and record-keep in the right way. So you've confirmed the tax-exempt status of the organization that received your gift. What must you do next to achieve the added benefit of a tax deduction? For monetary gifts and out-of-pocket expenses, the rules are relatively straightforward. When you give a charitable gift of cash, the IRS wants you to obtain – within a limited timeframe – adequate information confirming the amount of the gift, the organization to which it was made, and in, some cases, whether goods or services were exchanged in connection with that gift. Specifically, all charitable receipts must be in hand by the earlier of the date you file your return and the due date of your return, including extensions. Written acknowledgements received by these dates will be considered "contemporaneous." The IRS has published guides [here and here] to help taxpayers with the various substantiation and disclosure requirements. Below are the highlights regarding cash gifts.

One-Time Cash Gifts

For each gift under $250

  • You must retain in your records at least one of the following:
    • Canceled check;
    • Bank statement;
    • Credit card statement; or
    • Contemporaneous receipt from the charity.

For each gift of $250 or more

  • In addition, you must have a contemporaneous note from the charity detailing:
    • Amount contributed; and
    • Whether the charity provided you any goods or services in exchange for the gift, with a description and value, of any such goods or services, except when the goods and services are insubstantial in value such as a tchotchke with a logo or a benefit stemming from a low-cost annual membership.
  • Requirement easily missed: when a taxpayer has contributed cash to the family foundation she created, she must obtain the note from her foundation.

Payroll Deductions

  • You must retain in your records:
    • Pledge card from the charity and, if a single contribution is $250 or more, the pledge card should provide that no goods or services were received in exchange for your gift; and
    • W-2 or paystub reflecting your gift.

Out-of-Pocket Expenses

For each unreimbursed expense under $250

  • For unreimbursed out-of-pocket expenses you incurred while volunteering for a charity, such as mileage and travel expenses, you must keep in your files reliable and contemporaneous written records with:
    • Name of the charity;
    • Date of the expense incurred; and
    • Amount of the expense.
    • Distinction easily missed: the standard mileage rate for charitable purposes (14 cents per mile in 2015) is lower than that for business purposes.

For each unreimbursed expense of $250 or more

  • In addition, you must have a contemporaneous receipt from the charity detailing:
    • Description of your services; and
    • Whether the charity provided you any goods or services as reimbursement, with a description and value of any such reimbursement.

3. Remember that not all forms of support are deductible. There is a common misconception that everything you do for charity carries a tax benefit with it. This is simply not true. For example, you cannot claim a charitable deduction for the following:

  • Value of your time or services donated to a charity;
  • Cost of raffle or lottery tickets to support a charity; or
  • Tuition payments.

4. Take responsibility. You bear the burden of proving that a charitable contribution meets the criteria for a deduction. While these may seem like small details, the IRS expects you to meet all substantiation requirements if you are claiming a deduction for a charitable contribution. The IRS has repeatedly disallowed deductions for donations, even when it is clear that the charity received the funds, when the taxpayer's substantiation failed to meet IRS standards.

5. Do a little each time you give. It is much easier to keep up with the substantiation requirements if you can do your due diligence each time you make a charitable contribution. Try to maintain up-to-date, organized records of your charitable contributions throughout the year. You'll be thanking yourself when next tax season rolls around.

Originally published on March 22, 2016

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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