Charitable Contributions – Deductions and Recordkeeping

I receive lots of questions around tax time about what charitable contributions are deductible and what records need to be kept to validate the deductions.  Here’s my brief attempt at the basics of donating cash, donating property, or performing charitable services through which you incur expenses:

Cash

1)      If you make a donation in cash that is under $250, an acknowledgement from the organization is not required as long as you have a bank record of the transaction (account statement, credit card bill).  The record must include the name of the charity and the amount of the contribution.  Alternatively, you can have a receipt from the organization, or a payroll record if you donated through a payroll deduction.

2)      If you make a donation in cash that is $250 or over, you must receive acknowledgement from the organization dated prior to the due date of your tax return, and it must state:

  1. The amount of cash and a description (but not the value) of any property other than cash contributed.
  2. Whether the organization receiving the donation provided any goods or services in consideration, in whole or in part, for any cash or property that was contributed.  This is important.  A simple letter saying you donated $1,000 to the organization will not qualify because it doesn’t say specifically that you didn’t receive anything in return for the donation.  In a recent court case, a couple contributed $25,171 to their church over multiple donations through the year, most of which were over $250.  At the end of the year, they received a letter stating the total (and thanking them for their generosity), but the letter didn’t include a statement that said they received nothing in return.  The IRS challenged the deduction, it went to court, and the Tax Court sided with the IRS since this clearly violated the rules for taking a deduction.
  3. A description and good faith estimate of the value of any goods or services received by the donor or if such goods and services consist solely of intangible religious benefit.

Property

If you donate property to a qualified charitable organization, you generally can deduct the fair market value of the property.  This is not the amount you paid for it.  It is the amount the property is worth at the time of the donation (generally not to exceed the value you paid for it).  The recordkeeping rules differ based mainly on the deductible value of the donation:

1)      If the deductible value is less than $250, you need a receipt from the organization showing the name of the organization, the date and location of the donation, and a reasonably detailed description of the property (“1 large bag of clothes” will not do).  Note, the IRS says that you do not need a receipt for donations < $250 if it is impractical to get one (like an unattended drop box).  You must also keep records of the donation which include:

  1. The name and address of the organization
  2. The date and location of the donation
  3. A reasonably detailed description of the property
  4. The fair market value of the property and how you determined it (i.e. thrift shop value, comparative sales, etc.)
  5. Your cost basis in the property
  6. The amount you claim as the deduction
  7. The terms of any conditions attached to the donation.

2)      If the deductible value is between $250 and $500 (inclusive), you need:

  1. the information from #1 above, AND,
  2. a written acknowledgement from the organization detailing the property donated, whether you received anything in return or not, and a description and good faith estimate of anything you did receive in return.  This must be received before the due date of your tax return.

3)      If the deductible value is over $500 but not over $5,000, you need:

  1. the information from #2 above, AND,
  2. your own records showing how you obtained the property, the approximate date you obtained the property, and your cost basis in the property.

4)      If the deductible value is over $5,000, you need:

  1. the information from #3 above, AND,
  2. a qualified appraisal

Special rules exist for cars, boats, and airplanes which include receiving a 1098-C from the charitable organization and your deduction being limited to the amount for which your donated item was sold by the organization (e.g. if you donate your car with a blue book value of $2k to your church and they sell it for $750, your deduction is limited to $750).

Expenses

You can deduct expenses you incur in connection with performing charitable work as long as the expenses are:

1)      not reimbursed,

2)      directly connected with the services you provided,

3)      expenses you only incurred because of the services you provided, AND

4)      not personal, living, or family expenses.

The cost of travel to perform charitable services is deductible including the cost of driving your own car at the annual charitable mileage deduction amount as posted by the IRS (14 cents per mile for 2012 and 2013).  Meals are generally only deductible if you’re required to be away from home overnight.

Note: you cannot deduct the value of your time in performing or traveling to/from charitable services.

See IRS Publication 526 for more information.

Where’s My Refund Tool

The IRS is not providing estimates for direct deposit this year as part of your Form 9325 (E-File Confirmation). If you expect a refund from the IRS, you can check the “Where’s My Refund” tool available at irs.gov. See the information below from the IRS with more detail on the tool:

After the IRS starts processing returns, it expects to process refunds within the usual timeframes. Last year, the IRS issued more than nine out of 10 refunds to taxpayers in less than 21 days, and it expects the same results in 2013. Even though the IRS issues most refunds in less than 21 days, some tax returns will require additional review and take longer. To help protect against refund fraud, the IRS has put in place stronger security filters this filing season.

After taxpayers file a return, they can track the status of the refund with the “Where’s My Refund?” tool available on the IRS.gov website. New this year, instead of an estimated date, Where’s My Refund? will give people an actual personalized refund date after the IRS processes the tax return and approves the refund.

“Where’s My Refund?” will be available for use after the IRS starts processing tax returns on Jan. 30. Here are some tips for using “Where’s My Refund?” after it’s available on Jan. 30:

  • Initial information will generally be available within 24 hours after the IRS receives the taxpayer’s e-filed return or four weeks after mailing a paper return.
  • The system updates every 24 hours, usually overnight. There’s no need to check more than once a day.
  • “Where’s My Refund?” provides the most accurate and complete information that the IRS has about the refund, so there is no need to call the IRS unless the web tool says to do so.
  • To use the “Where’s My Refund?” tool, taxpayers need to have a copy of their tax return for reference. Taxpayers will need their social security number, filing status and the exact dollar amount of the refund they are expecting.

For the latest information about the Jan. 30 tax season opening, tax law changes and tax refunds, visit IRS.gov.

Additional IRS Resources:

IRS YouTube Video:

  • When Will I Get My Refund? –