Not Providing Substantiation Could Severely Limit or Destroy your Charitable Deduction

Have you ever wondered why accountants make such a big deal about clients receiving charity letters from charitable organizations? It is only a little piece of paper, what does it really matter? Accountants ask about it because they want you to have substantiation just in case the IRS comes around asking for more details on your contributions.

In a tax court case, a taxpayer claimed close to $27,000 in charitable contributions, but the IRS disallowed all of it because they taxpayer did not have enough substantiation for the contributions to be claimed (Smith, TC Memo 2014-203). Your accountant does not want this to happen to you, so they strive to get as much information from you so you do not have to worry about this ever happening to you.

There are different rules between cash contributions and non-cash contributions, first we will at first look at cash. When you make a cash contribution, in order to claim the deduction, you must have some documentation about it. You could have a copy of the check written or some other bank record, you could have a receipt letter from the qualified organization, or you could have payroll deduction records. If your cash contribution is over $250, you must have a written letter from the qualified organization that states the name of the organization, the date of the contribution, and the amount of the contribution.

If you make a non-cash contribution, the rules get a little more specific. If you make a contribution of $250 or less, you just need a receipt from the charitable organization showing the name of the organization, date of contribution, and description of the property. If you make a contribution between $250-$500 you are required to get and keep a letter from the qualified organization. It must include the same information as the $250 limit letter, but you must get the receipt before you file your return or the due date of the return, whichever is earlier.

For non-cash contributions of $500-$5,000, you must get everything you needed to get for the $250-$500 range, and then you also have to get additional information. This includes how you obtained the property, the date you obtained the property, and the cost or basis of the property.

For non-cash contributions over $5,000, you must acquire all the information needed for the $500-$5,000 range and then in addition, you need to obtain a written appraisal of the property donated to the organization from a qualified appraiser.

There are many specific details that you need to order to provide substantiation, but bottom line, you have to provide substantiation for the charitable contributions that you make, otherwise the IRS might reject your deductions. More details can be found on the IRS website or contact an Anders advisor for additional details or questions you may have.