Charitable gifts also give back to the contributor in the form of a tax deduction, but only if you keep the proper documentation. Below are 5 rules to know about deductible qualifying charitable gifts:
- Cash gifts of $250 or more – Charities are required to provide written receipt of all gifts valued at $250 or more. Acknowledgement of the contribution must state that ‘no goods or services were received in exchange for the donation.’ Without that statement, the deduction is invalid. The rule is for each individual contribution. So if you make multiple contributions totaling more than $250, the rule doesn’t apply.
- Tickets to charitable benefits – The deductible amount is the difference between the total face value of the ticket and the amount of goods provided. For example, if a dinner ticket is $100, and the dinner value (amount provided by the charity) is $25, then the deductible amount is $75.
- Donation of goods less than $250 – A charity probably won’t fill in the details of the donation for you, but they will give you a receipt with the date, location, and name of the organization. If asked by the IRS, you need to substantiate the donation with a list of items and their fair market value (FMV) at time of donation. It is up to you to determine the FMV of items, and you can do that by using guidelines from organizations such as Goodwill or the Salvation Army. Keep a record of how you determine the FMV. (Note that for donations less than $250, the charity is not required to provide a receipt, but your records will substantiate the donation.)
- Donation of goods valued between $250 and $4,999 – Charities are required to provide written acknowledgment of property donated, and include the value of benefits given to you in return or the absence of benefits given. Donations valued over $500 require additional substantiation by you: approximate date property acquired, how it was acquired (purchase, gift, etc.), detailed description, cost or other basis, FMV and how you determined FMV.
- Donation of goods or property valued over $5,000 – All of the same rules and requirements for donations over $500 apply, AND you must provide an independent appraisal of the donated property. You need to include a copy of the appraisal with your federal tax return.
Charities must provide acknowledgement of donation prior to the date that the donor files an income tax return for the year the donation occurred. It may seem like a lot of work to substantiate non-cash donations. However, the downside lack of recordkeeping is that the IRS is serious about denying charitable tax deductions without proper records.