Charitable Deductions: If You Don’t Prove 'Em, You’ll Lose 'Em

Mar 27th 2015
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When it comes to claiming charitable deductions on a 2014 federal income tax return, good recordkeeping is essential. The IRS imposes strict rules concerning write-offs for both monetary contributions and donations of property. If you can’t withstand a challenge from the IRS, these deductions may vanish ... forever.

Monetary contributions. Under current law, no deduction is allowed for any donation of cash, check, or other monetary gift unless you can provide a bank record or written communication from a qualified charitable organization. The written communication must show:

  • The amount of the contribution.
  • The date the contribution was made.
  • The name of the charitable organization.

In other words, you can’t simply deduct the cash you toss in a kettle around the holidays or the $10 bill you gave to buy a raffle ticket for a school fundraiser. However, bank and credit card statements can be used to substantiate donations made by credit or debit cards.

In addition, you must secure a written acknowledgment from the charity for gifts of $250 or more. The acknowledgment has to be obtained by the earlier of the date your tax return is filed or the due date of the return (plus any extensions). It should include the following:

  • The amount of cash or the check.
  • A description of any non-cash property that was contributed.
  • The value of any goods or services provided.

Caveat: If these goods or services consist solely of "intangible religious benefits", you may substitute a statement to that effect.

If a “quid pro quo contribution” that is made at least partially in exchange for goods or services exceeds $75, the charity must provide a good-faith estimate of the goods and services received and the amount of payment exceeding the value of the benefit.

Gifts of property. For gifts of property that have depreciated in value, such as used clothing and household items donated to the Salvation Army or Goodwill, you can deduct the current fair market value (FMV) of the property. Of course, FMV can be in the eye of the beholder, so the IRS may contest deductions it considers to be inflated or overly aggressive. It is recommended that you use established guidelines, like the one provided by the Salvation Army, to specify deductions for identified items.

If the donated property has appreciated in value, you can generally deduct the FMV of the property if it would have produced a long-term capital gain had you sold it instead of donated it (i.e., you must have owned the property for more than a year). Otherwise, your deduction is limited to your basis in the property. To qualify for a deduction based on FMV, the property must also be used in furtherance of the charity’s tax-exempt function. Note: Other special rules apply to donations of vehicles.

Finally, additional tax return information is required for certain high-priced gifts. For gifts valued at more than $500, you must attach to the tax return a written description of the donated property and other relevant information. If the gift is valued at more than $5,000, the client is required to obtain an independent appraisal of the donated property and attach an appraisal summary to the return.

These recordkeeping rules are a hassle for clients, but the extra effort is usually worthwhile when the tax results are in. As a bonus, the cost of an independent appraisal is treated as a deductible miscellaneous expense, subject to the usual rules.

Related articles:

How to Strategize Your Charitable Contributions
IRS Posts Nine Tips for Deducting Charitable Gifts


Replies (2)

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By Nell Nichols
Jun 25th 2015 20:12 EDT

In 2014 I added an office onto my home . This office is the home for a non-profit organization that I founded in 2001. We have General Body Meetings as well as committee meetings there when needed. I use my office strictly for organizational business.
My question is, can I use any portion of this new office as a tax deduction and if so, what portion and how much?

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By bramweller
Jun 25th 2015 20:12 EDT

Hi Nell, Ken wanted me to pass along a response to your question. Here's what he told me:

Did some quick research and it doesn't appear that home office deductions are available in this situation. See the following:

Also, see this: http://www.notforprofitaccount...

At least you can deduct the cost of supplies -- printer cartridge, pens, etc. used for the nonprofit in the home office.

I would think you would have a stronger argument if you are an employee of the organization and you otherwise meet the rules, but that doesn't seem to be the case here. But I'm still not sure because the IRS rules apply to a "business."

Hope this insight from Ken helps. If you'd like to reach other members of our community, you could post your question in our Forum. Just click on the "Forum" tab below our masthead and submit your question.


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