Charitable Contributions | The Dos, Don’ts, and Documentation
Published on by Andy Bertke in Estate Planning, Tax Services
It seems like giving should be easier.
Charitable giving is widespread in the U.S. and plays a crucial role in supporting countless non-profit organizations across a wide range of categories: education, healthcare, environmental protection, social services, and the arts. To foster charitable giving, the tax code under Section 170 and other code sections provides a tax deduction if the donation is to a qualified charity.
Unfortunately, that’s not as simple as it sounds.
The rules for charitable giving
Internal Revenue Code (IRC) Section 170 alone is a lengthy 22,646 words (about 50 pages), and the IRS often enforces strict compliance rules for substantiating charitable deductions, even for technical errors in documentation, when otherwise the taxpayer’s contribution is heartfelt, genuine, accurate, and intended for a qualified charitable purpose.
There are distinct levels of compliance with various contribution amounts and type of property gifted, not to mention various levels of deductibility based on adjusted gross income (AGI) – and let’s not forget carryovers of charitable contributions to future years.
Documentation required for charitable contributions
A contribution of at least $250 must be supported by a written acknowledgment of the contribution from the donee organization. If no acknowledgement is provided, the deduction will be denied.
Documenting non-cash contributions to non-profits
If you’re contributing anything other than cash, there are additional substantiation requirements when the property has a value greater than $500. So, if you want the deduction, in addition to the receipt, your deduction will be disallowed unless your tax return includes IRS Form 8283.
For a contribution of property worth more than $500 but not more than $5,000, the donor is required to complete only Section A of the Form 8283.
For property valued at more than $5,000 but not more than $500,000, a qualified appraisal is needed and incorporated into the Form 8283. So, yes, you have to spend money to make a contribution of this size.
If you want to contribute property with a fair market value of more than $500,000, the appraisal is required to be included with the Form 8283 and filed with the return, including any following years where a carryover contribution deduction is claimed.
Hope for a simplified code?
Hopefully, in the future, the Internal Revenue Code regarding charitable deductions will become simplified or the IRS will adopt a substantial compliance standard that better aligns with the spirit of the law. But, until that happens, make sure you’re dotting your I’s and crossing your T’s when you make a charitable contribution.
Related resources
You might also be interested in maximizing the value of charitable gifts, or how to use life insurance policies to make charitable donations – or in our estate planning guide. Have questions or want to be sure you and the charitable organization of your choice are getting the most out of your generous gift? Contact us to set up a free consultation with one of our top tax professionals. As always, we’re here to help.