To Maximize Your 2014 Charitable Donation Deductions, Be Sure to Properly Substantiate ThemJanuary 13, 2015
Charitable gifting can be a powerful tax-saving tool, especially for high net worth taxpayers.
Charitable gifting can be a powerful tax-saving tool, especially for high net worth taxpayers. But you must have proper substantiation. Although it’s too late to make additional donations to reduce your 2014 tax liability, you likely still have time to obtain the substantiation needed to deduct the donations you made in 2014.
For gifts of $250 or more, IRS substantiation rules generally require a contemporaneous written acknowledgment from the charity. The acknowledgment must include:
- The amount of the donation, and
- The value of any goods or services you received in consideration for the donation (or a statement that you didn’t receive any such goods or services).
The definition of “contemporaneous” is key. According to the IRS, it means the earlier of 1) the date you file your tax return, or 2) the extended due date of your return. The good news about this definition is that, if you’re waiting for acknowledgments of some of your 2014 donations, you still have time to get them (assuming you haven’t filed your 2014 return yet).
It’s important to take the substantiation requirements seriously. Consider the U.S. Tax Court case Durden v. Commissioner. Even though the taxpayers had canceled checks and a written acknowledgment from the charity, the IRS denied their donation deduction. Why? The acknowledgment didn’t state whether the taxpayers had received goods or services in consideration for their donation.
After the deduction was denied, the taxpayers got another acknowledgment from the charity that did include the required statement. Nevertheless, the Tax Court sided with the IRS and denied the deduction because the second acknowledgment wasn’t contemporaneous.
Noncash gifts can have additional substantiation requirements. For example, for a deduction of $500 or more, you must file Form 8283 and include a written description of the donated property. For a deduction in excess of $5,000 ($10,000 for non-publicly traded securities), you must also have a qualified appraisal. (Publicly traded securities are exempt from the appraisal requirement.)
Additional substantiation requirements apply in some cases. Also keep in mind that, even if you’ve properly substantiated all of your donations, your deductions might be limited, depending on such factors as the types of assets donated, how long you’ve held them, how the charity will use them and your adjusted gross income.
As you can see, the rules surrounding charitable donation deductions are complex. Please contact us to ensure you’re following the rules and maximizing your deductions