November 13, 2015 – At this time of year, our thoughts often turn to charitable donations. We contribute because we can, because we believe in an organization’s mission, or because someone needs our help. In addition to the benefit to the person/organization that’s been donated to, and the validation we feel at helping, there is another benefit – the tax deduction. But how much of your donation is deductible? Here is what you as a donor and/or you as a charitable organization need to know regarding documenting the donation.
Charitable organizations that either receive contributions of $250 or more, or provide goods or services to donors who make contributions of more than $75, are required to provide a written acknowledgment to the donor of the contribution made. Per IRS Publication 1771: Charitable Contributions – Substantiation and Disclosure Requirements, an organization that does not acknowledge a contribution will not incur a penalty, however, individuals that do not receive a written confirmation for a donation greater that $250 will not be able to claim the donation as a tax deduction. The following information is required to be included in the acknowledgement:
- The name of the organization, and
- The amount of cash that was contributed, and
- A description of non-cash contributions (not including a value), and
- A statement that the organization provided no goods or services in return for the contribution, OR a description and good faith estimate of the value of the goods or services that the organization provided in return for the contribution, OR a statement that the goods or services that the organization provided consisted entirely of intangible religious benefits
Goods and services provided by the organization can include, but are not limited to: cash, property services, benefits, or privileges. Insubstantial goods or services are not required to be described in the acknowledgement. Goods or services are insubstantial if:
- The fair market value of the benefits received does not exceed the lesser of 2% of the payment, or
- The only items provided bear the organization’s name or logo, and the cost of the items are within the limit for “low-cost articles”, or
- The donor makes an annual payment of $75 or less per year and receives only annual membership benefits
The organization can provide separate acknowledgements for each separate contribution of $250 or more, or they can provide the donor with an annual summary containing the aggregate amount the donor provided during the year. The acknowledgement can be provided to the donor in either paper form, or electronically, such as via e-mail.
About the Author
Samantha Affolter CPA
Samantha helps both business and individual clients with her tax compliance and tax planning expertise.