Are you missing the deduction for any charitable donations you made? In general, a taxpayer must obtain proof of any cash charitable contribution claimed on Schedule A, Itemized Deductions. Common examples of proof include a canceled check or bank statement. A majority of charities will provide the taxpayer with written acknowledgement on their letterhead, documenting the amount and date of the contribution. Written acknowledgement may be in the form of a letter or e-mail. Any donations in the form of cash must have a written acknowledgement in order to claim a deduction.
The tax rules are clear: Per the IRS, any contribution above $250 MUST have written substantiation from the charitable organization. The acknowledgement letter must be on the organization’s letterhead and include the amount and date of the contribution. In order to claim the deduction, the letter must be received by the taxpayer no later than the date the income tax return is filed. This is very important, because upon audit, the IRS will disallow contributions if the acknowledgement letter was received after the return was filed. Additionally, a cancelled check or bank statement is not sufficient to support a deduction. For cash donations under $250, a receipt or cancelled check should suffice.
If the taxpayer receives goods and/or services, such as, dinner or gifts (usually for galas, membership renewals, etc.), the acknowledgement letter must reflect the dollar amount of the goods and/or services received by the taxpayer. Thus, the amount of the charitable contribution reported on Schedule A is reduced by the value of the goods and/or services received.
A taxpayer may choose to have a charitable contribution deducted from their payroll. If so, the taxpayer must obtain a Form W-2 or other document from the employer showing the payroll deduction. A pledge card or other document prepared by the charity is sufficient as well.
On a related note, in a recent tax case (Van Dusen vs. Commissioner), a woman attempted to take a charitable deduction for the expenses she incurred while taking care of cats in her home for an IRS-approved charity, Fix Our Ferals. Her $12,068 contribution/deduction was for food, veterinarian bills, litter, a portion of her utility bills and other items, such as, paper towels and trash bags. The judge in the case allowed her to deduct some of the bills and a portion of others, ruling that they were unreimbursed expenses incurred to help a charity in its mission. However, he curtailed the total deduction because she did not have a valid letter from the charity acknowledging her volunteer work for expenses above $250. Therefore, all expenses in excess of $250 were denied.
There are thousands of people who do volunteer work and incur expenses on behalf of their favorite charities. So be aware of what you are spending on behalf of that charity. Be sure that you obtain an acknowledgement letter from the charity if you intend to take a tax deduction for expenses incurred—especially if they will exceed the $250 threshold.
At Henssler Financial, we believe you should Live Ready. That includes understanding the required substantiation for charitable deductions.
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