Tax deductions aren’t the only reason that you make charitable contributions – but they’re a nice perk! Unfortunately, the IRS has been cracking down on the documentation required for charitable contribution deductions. Here’s what you need to know to make sure that your charitable contributions get you the deductions that you deserve.
The Backstory
A U.S. Tax Court case (Durden v. Commissioner) was decided in May 2012 that denied taxpayers a $25,171 deduction related to cash contributions to their church. The reason: the church’s original donation receipt lacked the necessary language about whether any goods or services were provided in exchange for their contributions. The church provided a second letter in June 2009 (after the IRS initiated an audit), which did include the appropriate language, but the letter was dated after the filing of the tax return. The judge agreed with the IRS that the taxpayers failed to comply with the substantiation requirement. Even though cancelled checks were provided to the IRS and the IRS acknowledged the donations did occur, the deduction was denied.
The Takeaway
A donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a written acknowledgment of the contribution from the organization. A separate acknowledgment may be provided for each single contribution of $250 or more, or one acknowledgment with an annual summary may be used to substantiate multiple contributions of $250 or more.
The written acknowledgment should include the following:
- Name of organization
- Amount of cash contribution
- Description (but not the value) of non-cash contribution
- Statement that no goods or services were provided by the organization in return for the contribution, if that is the case
- Description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution
- Statement that goods or services, if any, that a religious organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case
Typically organizations send the written acknowledgment at the time of the contribution or no later than January 31 of the year following the donations. However, the letter can be received at any point before the tax return is filed.
What You Can Do
This case reinforced the importance of keeping track of donation receipts. As you gather documents for tax preparation, make sure you obtain letters for all donations greater than $250 and retain them in your files. Check to ensure that they contain the appropriate written acknowledgement as outlined above. If they don’t, contact the organization to discuss the letters’ contents and ensure that your donations were processed correctly. You don’t want a paperwork error leading to an audit and a costly tax bill!
Ohio Tax Help
Not sure if your deductions are in order? Worried about a potential audit? Contact Rea & Associates. Our Ohio tax professionals can help you deal with a tax problem – or prevent one before it starts! Contact Rea’s Ohio tax accountants to ensure that you’re getting the deductions you deserve.