Of Donations and Documentation

Dresses and suits and sweaters and jeans, oh my! Donations to charitable organizations abound. One of the more generous line item deductions on a personal income tax return, the Schedule A itemized deductions allow taxpayers to make charitable contributions of up to 50% of their adjusted gross income (30% for capital gain property) for most taxpayers.

When was the last time you gave stuff away to charity? Do you make a particular effort to get your extra items out the door before December 31st so you could take advantage of deductions on your tax return?

Very generous individuals will see a limitation, but with some special opportunities for carry-forward of limited amounts. Wealthier taxpayers will see an overall limitation of itemized deductions. Of course, there are specifics that always apply, so be sure to consult a tax professional.

Imagine your mom passed away and your dad, grief-stricken, asked you take everything out of the family house. You donate truckloads of items, everything from bedroom sets, televisions, to sofas and rugs.

How would you document those donations?  Are they your donations, or do they belong to your father, or your mother’s estate?  How much effort do you make in keeping track of what you actually give away, its condition, how much was paid it for originally, and how much it is worth when you donate it?  How about if you made a really large donation of a lot small items, too, things that did belong to you and your immediate family personally – clothes, household goods.  What if, according to you, it all adds up to almost $28,000?  Does a spreadsheet with item descriptions and assigned values attached to the blank receipts the agencies hand out seem like sufficient paperwork?

Contrary to popular belief, there are rules about substantiation and documentation for charitable contributions, as well as what organizations qualify as charitable organizations. There are also very clear rules on record-keeping for charitable contributions that many people either overlook or ignore. You must have records of every single contribution of cash or goods, and the rules become even stricter as your contribution amounts increase. If you’ve received anything of value in exchange for your contribution, only the amount in excess of the value of what you received is deductible. For instance, you purchased two tickets to a spaghetti dinner at the local firehouse for $50, and the value of your dinners is $10, then $40 is the amount you are able to deduct.

Before you claim charitable deductions on your tax return, be sure to have the right paperwork.

FOR CASH Less that $250: Bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. These include a canceled check, a bank or credit union statement or credit card statement. ORA receipt (or letter) from the qualified organization showing the qualified organization, the date of the contribution, and the amount of the contribution OR Payroll deduction records such as a pay stub, form W-2 or other document furnished by your employer that shows the date and amount of the contribution AND a pledge card or other document prepared by or for the qualified organization that shows the name of the organization.

FOR CASH greater than $250: A written acknowledgement that must include amount of cash you contributed, whether the qualified organization give you any good or services as a result of your contribution, a description & good faith estimate of the value of any goods or services received and a statement that the only benefit you received was an intangible religious benefit, if that was case. You must get the acknowledgment on or before the earlier of the date you file your return for the year you make the contribution or the due date, including extension for filing the return.

Noncash donations, often made to places like Goodwill and the Salvation Army, have additional recordkeeping requirements. When figuring your donation amount, the claimed contributions must be combined for all similar items of property donated to any charitable organization during the year. As the amount of your goods donation increases, so does your recordkeeping requirement.

FOR ALL NONCASH: Taxpayers should have reliable written records for each item of contributed property. They must include: name and address of the organization, the date and location of contribution, description of the property in reasonable detail, whether the qualified organization give you any good or services as a result of your contribution, a description & good faith estimate of the value of any goods or services received and a statement that the only benefit you received was an intangible religious benefit, if that was case.  You must get the acknowledgment on or before the earlier of the date you file your return for the year you make the contribution or the due date, including extension for filing the return.  You are not required to have a receipt where it is impractical to get one (for example, if you leave property at a charity’s unattended drop site).

 FOR NONCASH less than $250: A receipt that includes the name of the charitable organization, the date and location of the contribution and a reasonably detailed description of the property. A letter from the organization with the same information may also serve as a receipt.

FOR NONCASH greater than $250 but less than $500: An acknowledgement with the same information as for cash greater than $250, but it must also include a description of any property you contributed.

FOR NONCASH greater than $500 but less than $5,000: An acknowledgement the same as above, but with additional specific records that include:

  • How you acquired the property (purchase, inheritance, give, exchange, etc.
  • Approximate date you acquired the property
  • The cost or other basis, and any adjustments to the basis of property held less than 12 months
  • If available the cost or other basis of property help more than 12 months – If you have reasonable cause for being unable to provide information about the date you got the property or the cost basis of the property, attach a statement to your return.

FOR NONCASH greater than $5,000: All the same information as above, in addition to a written appraisal of the donated property from a qualified appraiser. Over $5,000 in noncash contributions (other than publicly traded securities) must also have the organization sign Part IV of Section B of the 8283.

As you’ve probably guessed, the taxpayer in the situation above was denied the charitable deductions because he lacked substantiation. The Tax Court didn’t address the issue of whether or not the donations from his mother’s property should have been allowed on his return, because the issue before the court was only if the deductions should be allowed based on the substantiation, recordkeeping and documentation.

 

This article was first published on LinkedIn via LinkedIn Pulse on November 2, 2015.

A Practical Point in the Face of Tragedy

May 11, 2015

I was shocked this morning to wake up to the news that a sorority sister’s husband had passed away suddenly.  He was the same age as my husband and I, a fraternity brother of my husband, in fact.

Getting older, the sudden loss of a peer due to health reasons rather than an accident, coupled with watching our parents age, brings uncomfortable thoughts and stark realities into clearer focus.

These tragic circumstances always bring practical questions to my mind.  In the case of my sorority sister, her husband was a self-employed attorney and she was his paralegal. I am left wondering if they have life insurance, what is the status of the cases they had pending, do they have savings that will get her through the next few weeks?  How will she continue to provide for her daughter now that not only is her husband gone, but also her job?

It is said that nothing is for certain but death and taxes.  And as cliché as that is, there is truth in the statement.  So many hurts will be resurrected next year as she goes through the process of filing their final tax return as a couple, if there is a need for an estate return, gathering information and working to determine what is actually needed to get this requirement of life – even in death – completed.

I have prepared tax returns for soldiers killed in action, for couples after a sudden death, and for those that know the inevitable is coming.  It is tragic, and an honor to serve those who are coping with this pain.  There are tools, resources, and professionals out there guide loved ones through this process, call upon them to make this as smooth as this process can be.

For friends and family assisting those they love through this tragic time, be a shoulder to cry on, a rock in the tide, and a source of information in the time of need.

Here is a starting point from the IRS, http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Deceased-Taxpayers-Probate-Filing-Estate-and-Individual-Returns-Paying-Taxes-Due

Nothing will make this process completely pain free, but we can strive to make it less stressful and painful.

This article was first published on May 11, 2015, via Linked In Pulse on my Linked In profile.