Addendum to the article published in our Q3 2023 Newsletter on 8/10/2023. This information is subject to change, and the IRS website supersedes the information in this article.
Charitable Giving: Dot Your i’s and Cross Your t’s
Each year, many taxpayers choose to reduce their tax bill by supporting their favorite charity and itemizing deductions. However, the Tax Cuts and Jobs Act of 2017 significantly increased the standard deduction, so itemizing deductions each year may not be the right course of action.
One option to create a worthwhile tax benefit is to be strategic by bunching several years of deductions into one year. By doing this, your itemized deductions exceed the standard deduction. Executing this strategy usually leads to larger donations every few years. Whether these larger gifts consist of several donations to multiple charities or one large donation to a single charity, it is extremely important to know the recordkeeping rules for charitable giving. The last thing anyone wants is to give to a charity, anticipating a tax benefit, only to have the IRS disallow the deduction because the proper documentation was not maintained.
To further complicate the matter, the recordkeeping rules differ based on the amount and type of donation. Fortunately, there are giving tools, like a Donor Advised Fund, that serve to ease the administrative burden of recordkeeping and help to facilitate a strategy like bunching deductions. The rules are strict, and the IRS is aggressive in enforcing them. This underscores the importance of keeping good records to support your charitable giving.
While not a complete list, below are some highlights of the general recordkeeping rules.
Cash Donations
For cash donations under $250, you must keep one of the following: (1) a bank statement or similar record showing the charity’s name, when the donation was made, and the amount of the donation, (2) a receipt from the charity showing the name of the organization, date, and amount of the donation, or (3) a payroll reduction record. The same rules apply for periodic donations to the same charity that exceed $250 in total if each payment is below $250.
Cash donations exceeding $250 require a statement from the charity giving the amount of the donation and any goods or services received in exchange for the donation. The statement must include the value of the goods or services received. To qualify for the deduction, the charity’s acknowledgement must be in hand before filing a timely return.
Property Donations
For property donations below $250, the donor must have records that include the name and address of the charity, the donation site, date of donation, amount, and the condition of the property. A receipt from the charity is required unless it is impractical.
Property donations between $250-$500 require a written statement from the charity, which must be in hand before filing the tax return saying whether goods or services were provided to the donor. Only amounts exceeding the value of goods or services may be deducted. The charity’s statement must also describe the items received but a value is not required.
For donation amounts exceeding $500, compliance with all property rules above is required along with attaching a form to the tax return to report the cost basis and acquisition date of the donated property. Donations of similar property may be subject to aggregation rules, which could require more stringent rules depending on the total value of donated property.
Donations exceeding $5,000 require compliance with all property rules above and a qualified appraisal must be attached to the tax return.