The holiday season seems to be the catalyst for a great deal of the charitable giving undertaken by taxpayers each year within the United States. Whether the holiday season strikes a benevolent chord for most of us or whether we are prodded by the sophistication of charitable organizations fund raising campaigns emphasizing giving at this time of year, there is no question that many of us are more inclined to give more as year end approaches.
One distinct advantage of giving in the United States is the allowance of a charitable tax deduction as an itemized deduction IF the gift qualifies. Saving taxes is always a plus but should taxpayers find themselves open to such gifts, there is a certain degree of financial leverage afforded by the reduction in income taxes. Unfortunately, obtaining the tax deduction is not as simple as one might think and compliance with a myriad of rules is necessary to ensure that the charitable donation qualifies for deductibility.
The Internal Revenue Service in a News Release issued on November 25th, reminded taxpayers making year-end charitable contributions to keep in mind current tax law requirements. The rules are fundamental and vary somewhat on whether the gifts are monetary or in kind.
In consideration of contributing clothing and household goods, the Notice advises that “Household items include furniture, furnishings, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good used condition or better to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.
“Donors must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed.”
With respect to monetary contributions, a taxpayer must have a bank record or a written statement from the charity in order to deduct any donation of money, regardless of amount. The record must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank, credit union and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Pursuant to the Internal Revenue Service website, “a donor may not claim a deduction for any contribution of cash, a check, or other monetary gift made on or after Jan. 1, 2007, unless the donor maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution.”
Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
Finally, the Notice sets out a number of additional reminders with the intent of helping taxpayers plan their holiday and year-end giving to charity. Those reminders include:
- Qualified charities. Check that the charity is eligible. Only donations to eligible organizations are tax-deductible. Select Check, a searchable online tool available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations. That is true even if they are not listed in the tool’s database.
- Year-end gifts. Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2015 count for 2015, even if the credit card bill isn’t paid until 2016. Also, checks count for 2015 as long as they are mailed in 2015.
- Itemize deductions. For individuals, only taxpayers who itemize their deductions on Form 1040, Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction. This includes anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2015 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
- Record donations. For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
- Special Rules. The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
Clearly, there is much need within the charitable organization community and many fine and useful causes to support which deserve and could certainly use your support. However, if tax deductibility is part of your giving goals, it is important that these rules be respected in your charitable planning.
Please contact Bob Grossman or Don Johnston should you have questions or comments.
