By Bob Freese CPA, Schenck
Do you have the proper documentation to substantiate your charitable contributions? Most people would answer yes, but are surprised to learn what they have might not be enough. If you do not have the proper documentation upon audit, the entire deduction would be disallowed, resulting in additional taxes, penalties, and interest.
What documentation do you need to satisfy the substantiation requirements?
The nature of the required substantiation depends on the size of the contribution and whether it is a gift of cash or property. Any taxpayer making a contribution of property worth less than $250 must retain a receipt from the donee organization, except where doing so is impractical—in which case the donor must maintain reliable written records. The reliable written records, on each item of donated property, must include the name of the donee, the date and location of the contribution, a description of the property and the method used to determine its fair market value. Items donated should be in good used condition or better. For cash donations, a bank record or a receipt from the donee organization should be kept.
Contributions of $250 or more
You must obtain a contemporaneous written acknowledgment from the donee. This acknowledgment must include a description (but not value) of any property other than cash contributed.
- State whether the donee provided any goods or services in exchange for the gift; and
- If the donee did provide goods or services, include a description and good-faith estimate of their value.
The acknowledgment is contemporaneous if you obtain it from the donee on or before the earlier of the:
- a) date you file a return for the year of contribution; or
b) due date, including extensions, for filing that return.
Noncash contributions in excess of $500
You are required to maintain written records that must include, among other things:
- The approximate date the property was acquired and the manner of its acquisition
- A description of the property in detail reasonable under the circumstances
- The cost or another basis of the property
- The fair market value of the property at the time it was contributed; and
- The method used in determining its fair market value.
Contributions of property valued in excess of $5,000
You must satisfy the substantiation requirements discussed above and must also:
- Obtain a “qualified appraisal” of the items; and
- Attach a fully completed appraisal summary to your return. A qualified appraisal must be completed by a qualified appraiser no earlier than 60 days before the contribution date and no later than the extended due date of the tax return first claiming the deduction.
The appraisal must contain, among other things:
- A description of the property
- The appraiser’s qualifications
- The appraisal date
- The method used
- The specific basis for the valuation
- Any relevant agreement regarding the property, and
- A statement that says the appraisal was prepared for income tax purposes.
Separate contributions of less than $250
These aren’t subject to the above requirements, regardless of whether the sum of the contributions made by you to a donee organization during a tax year equals $250 or more. For contributions exceeding $500 and $5,000, similar items of property are aggregated for purposes of the substantiation rules.
Travel expenses may also apply
If you donate your services to a charity and travel as part of the service, some travel expenses may be deductible. To deduct your costs, your volunteer work must be to a qualified charity. Your charity work has to be real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip. You can’t deduct the value of your services that you give to charity. This includes income lost while you work as an unpaid volunteer for a qualified charity.
Deductible costs must be unreimbursed, directly connected with the services, expenses you had only because of the services you gave, and not personal, living or family expenses. Deductible costs include air, rail and bus transportation, car expenses, lodging costs, the cost of meals and taxi or other transportation costs between the airport or station and your hotel.
Penalties can apply
A recent court case disallowed $37,315 of legitimate deductions because the taxpayer failed the charitable contribution substantiation requirements. In addition, the taxpayer was subject to a 20% accuracy-related penalty for negligence or disregard of rules or regulations.
The term Negligence includes any failure to keep adequate books and records or to substantiate items properly. Most taxpayers do not claim contributions of that magnitude, but this case serves as a reminder the need to maintain the proper documentation to substantiate your charitable contributions.
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