A Reminder About Documenting Common Charitable Contributions

When it comes to charitable contributions, giving may be better than receiving, but receiving a tax deduction continues to require more effort, in light of the substantiation rules effective for 2007 and later years. To ensure that you can claim the charitable deductions to which you’re entitled, we want to remind you about these recordkeeping rules.

Cash Contributions of Less than $250 in Single Donation.

For cash contributions, it’s not unusual to give small amounts without expecting a receipt, such as when you drop a $20 bill into the collection plate at church. These amounts may accumulate to a sizeable sum by year-end. Previously, if the donations were less than $250, you could either keep cancelled checks or reliable records, such as a list that you’ve prepared showing the dates, amounts donated, and charities. Under the new rules, however, it’s no longer sufficient to simply keep good records of these donations when you tally up the amount to claim as charitable contributions. Instead, cash contributions of less than $250 given in a single contribution are only deductible if you keep a bank record (most likely a cancelled check, wire transfer acknowledgement, or credit card record) or written acknowledgement from the charity (donee) showing the name of the donee organization, the date of the contribution, and the amount of the contribution.

If you are likely to itemize deductions on your income tax return and typically make cash contributions of less than $250, you should make donations by check rather than cash, because that will easily satisfy the documentation requirements. Simply keeping good records of the donations is no longer enough to claim the deduction.

Cash and Property Contributions of More than $250 in Single Donation.

Substantiation of larger contributions of cash or other property (those that are more than $250) require a written acknowledgement from the charity, showing the description of the property or amount of cash donated and a statement as to whether the donor received any goods or services (with a good faith estimate of value) for the property donated. A canceled check or other reliable records are not sufficient proof. (You can obtain one written acknowledgment for multiple gifts of $250 or more to the same charity.) The acknowledgment must be received contemporaneously; that is, it must be obtained no later than the due date (or extended due date, if applicable) of the tax return for the year the contribution was made.

Contributions of Used Clothing and Household Items.

If you typically donate used clothing or household items to charities, such as Goodwill, the items must be in “good condition or better” unless the items were worth more than $500 and a qualified appraisal report is attached to your tax return. The IRS has not yet defined what is meant by “good condition or better.” Thus, you might consider keeping a detailed list and photos of contributed items (unless the property is appraised). No new documentation is required, but to protect yourself in case of an IRS audit, you should, at a minimum, document that the donations were in good condition. Furthermore, the use of unattended drop-off sites should be reserved for items of minimal value. It may be difficult to substantiate the contributions without a receipt.

Vehicle Contributions.

If you’re planning to donate a car, boat, or plane that’s valued over $500, you have to follow strict substantiation rules in order to claim the contribution deduction. Under these rules, you must receive, and attach to your tax return, a written acknowledgment from the charity within 30 days after the donated vehicle is sold (or within 30 days of the contribution if the charity uses the vehicle significantly in its exempt purpose, makes major improvements to the vehicle, sells it for a significantly discounted price, or gives it to a needy person in furtherance of the charity’s exempt purpose). The information needed in the written acknowledgement from the charity should include the (a) name and taxpayer identification number of the donor and (b) vehicle identification number (or similar number) of the vehicle.

The IRS has just issued new rules that require donors of vehicles valued at more than $500 to attach a special form (Form 1098-C—Contributions of Motor Vehicles, Boats and Airplanes), which is received from the charity and reports the necessary information about the vehicle donation. (The form is optional for vehicle donations of $500 or less.) To claim the deduction for the vehicle valued at more than $500, you should attach Copy B to your tax return.

It’s important to follow these recordkeeping requirements if you hope to claim the deduction for your donations because the IRS can and will disallow charitable deductions if these requirements aren’t met.