Tax substantiation of charitable deductions

This is a good time during the year to discuss the Internal Revenue Service deductibility rules for charitable contributions with clients, as they are all probably being inundated with mail and telephone solicitations for donations.
MAY 12, 2009
Situation: This is a good time during the year to discuss the Internal Revenue Service deductibility rules for charitable contributions with clients, as they are all probably being inundated with mail and telephone solicitations for donations. Solution: Regarding cash contributions, the IRS requires either a bank record (canceled check), a charge showing on a credit/debit card statement or a pay stub showing a deduction from net pay. If the contribution is either a single payment or a series of related payments to the same charity that totals $250 or more, then the donor needs a written communication from the charity stating the amount given and that nothing was given to the donor in exchange. The letter must be dated prior to the date of filing the tax return for the year of the contribution, including extensions. The donor can receive items of de minimis value such as personalized mailing labels, cards, mugs, etc. For contributions of property, a taxpayer must have appropriate documentation of the property donated and the condition of the property on the date of contribution. Additional information on how the property was acquired and how the fair market value was determined on the date of the contribution must be retained by the taxpayer. The taxpayer — not the charity — has this burden of substantiation. Used property must be in good condition or better. The taxpayer can use any one of several websites to assist in determining the “thrift shop value” for use on the tax return. There is also the issue of how to show charitable deductions on a tax return. It would be advisable to list each cash contribution with appropriate amounts and the name of the charity. Avoid listing a large figure for miscellaneous deductions, which might prompt an inquiry from the IRS. For donations of property, it is not necessary to attach an explanation to a return unless the contribution exceeds $500. That requires the completion of Part 2 of Form 8283 (non-cash charitable contributions). Should the value exceed $5,000, then a qualified appraisal should be completed and submitted along with Form 8283. Contributions that are no longer deductible are cash gifts to charities where no receipt is obtained and no bank record exists. Placing cash in a collection plate when the charity does not use the envelope system or tossing money into the kettle during the holidays no longer qualify. Merely having a trinket of appreciation in exchange for a property contribution will not satisfy the statute. It would lack the list, condition and value of the contribution. Obviously, if regular, continuous or large contributions are going to occur, it is in the taxpayer/donor’s best interest to consult a tax professional.

Latest News

Creative Planning's Peter Mallouk slams 'offensive' congressional stock trading
Creative Planning's Peter Mallouk slams 'offensive' congressional stock trading

"This shouldn’t be hard to ban, but neither party will do it. So offensive to the people they serve," RIA titan Peter Mallouk said in a post that referenced Nancy Pelosi's reported stock gains.

Raymond James hauls Ameriprise advisors managing $1.1B in New York
Raymond James hauls Ameriprise advisors managing $1.1B in New York

Elsewhere, Sanctuary Wealth recently attracted a $225 million team from Edward Jones in Colorado.

Cetera debuts new alts allocation portfolios for accredited investors
Cetera debuts new alts allocation portfolios for accredited investors

The giant hybrid RIA is elevating its appeal to advisors with a curated suite of alternative investment models, offering exposure to private equity, private credit, and real estate.

Steward Partners expands in California with $1.1 billion RIA acquisition
Steward Partners expands in California with $1.1 billion RIA acquisition

The $40 billion RIA firm's latest West Coast deal brings a veteran with over 25 years of experience to its legacy division for succession-focused advisors.

Invictus managers withhold $10M, trigger ERISA asset showdown
Invictus managers withhold $10M, trigger ERISA asset showdown

Invictus fund managers allegedly kept $10 million in plan assets after removal, setting off a legal fight that raises red flags for wealth firms.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.