It is that time of year. As many of you prepare your 2023 tax filings and review related supporting documentation, there are important items to note as they relate to those generous charitable donations.
As you may know, your deduction is limited based on whether you itemize your deductions or take advantage of Qualified Charitable Deductions (QCD). A QCD directly transfers funds from your IRA custodian, payable to a qualified charity.
Gifts to individuals are not deductible. Only qualified organizations are eligible to receive tax-deductible contributions.
You can refer to the IRS Tax Exempt Organization Search Tool to determine if the organization that you contributed to qualifies as a charitable organization for income tax deduction purposes.
In addition to the above, for contributions of cash, check, or other monetary gift (regardless of amount), you must maintain a record of the contribution: a bank record or a written communication from the qualified organization containing the name of the organization, the amount, and the date of the contribution. An overview of the documentation rules is below.
Cash Contributions
To validate a contribution to charity, you must obtain one type of documentation for a donation of less than $250 and a different type (a written concurrent acknowledgment) for a donation of $250 or more.
Donations of Less than $250
No deduction is permitted for any contributions of cash, checks, or other monetary gifts (in any amount) without a bank record (those include canceled checks, wire transfer acknowledgment, or credit card record) or a written statement from the charity that confirms the date and amount of the transaction. Credit card statements must show the name of the charity, the date, and the transaction posting date.
The $250 threshold is applied to each contribution separately. For example, if a donor makes multiple contributions to the same organization totaling $250 or more in a single year, but each gift is less than $250, written acknowledgment is not required unless the smaller gifts are parts of a series of related contributions made to “end run” the substantiation requirements. An organization must provide a written disclosure statement to a donor who makes a payment exceeding $75, partly as a contribution and partly for goods and services (quid pro quo) provided by the organization.
Observation: Thus, all contributions of money, regardless of dollar value, must have either a canceled check (or other bank record) or written communication from the charity showing the name of the charity organization, the date of the contribution, and the amount of your contribution.
Donations of $250 or More
No deduction is allowed for contributions of $250 or more unless the taxpayer receives a written acknowledgment from the charity. The acknowledgment must be received by the earlier of the date the return in which the deduction is claimed is filed or the due date (including extensions) for that return. It must indicate—
- the name and address of the charity;
- the date of the contribution;
- the amount of cash contributed;
- a description (but not an estimate of value) of any property contributed;
- whether the charity provided the donor any goods or services in exchange for the contribution; if so,
- a description and a good faith estimate of the value, of the goods or services provided by the charity or, if the only goods or services provided were intangible religious benefits, a statement to that effect.
Observation: The IRS has successfully disallowed contributions over $250 when the taxpayer failed to obtain the required written acknowledgment from the charity or when the acknowledgment did not contain all the required details. The written acknowledgment must contain a statement as to whether the donor received any goods or services in exchange for the contribution, even if no such goods or services were provided.
The written acknowledgment rule does not apply when the net value of the donation is less than $250. So, a written acknowledgment is not required if, for example, a cash contribution of $300 is made and the donor receives a $60 gift in return (quid pro quo makes it $240), but only if the taxpayer has a valid bank record such as a canceled check for substantiation.
Note: IRS Pub. 1771 “Charitable Contributions,” is an excellent resource that explains that an organization can provide either a paper copy of the acknowledgment to the donor or can provide it electronically, such as in an email addressed to the donor. Since there is no prescribed format for such acknowledgments, letters, postcards, and computer-generated forms are also acceptable.
It is your responsibility to obtain the acknowledgment, you must request it from the charity. The charity is not required to record or report this information to the IRS on behalf of the donor.
Caution: Failure to obtain a written acknowledgment within the time frame required from the charity, will prevent the donor from deducting the charitable contribution. In one case brought before the IRS, they disallowed a charitable deduction for cash contributions to the taxpayers’ church (even though the taxpayers retained copies of canceled checks) because the written acknowledgment was not obtained by the taxpayers before filing their return.
As always, seek the help of a professional tax advisor whenever you are in doubt about your charitable gifts. At JFS, we deliver full-service wealth management and integrated financial planning services for individuals & families, if you have questions about the information above, reach out – we’re here to help.
Any U.S. tax advice contained in this communication was not intended or written to be used, nor can be used, by any recipient of this communication for the purpose of avoiding penalties that might be imposed pursuant to the Internal Revenue Code or U.S. Treasury Regulations, or any other state or local law regulation.
