Charitable Giving - Substantiation - An Update

        Major changes in the tax rules affect the amount you can deduct for contributions you make to your college, religious organization, or other non-profit or charitable group. You used to be able to deduct contributions made in cash or by check without having any special verification from the charity that you made the contribution. A canceled check, receipt, or other reliable written record showing the name of the organization, the date, and the amount you gave would be enough to back up the deduction.

        For most smaller contributions, that is still the case. Now, however, you can't claim a deduction on your return for any contribution of $250 or more unless your gift is substantiated by a written acknowledgment from the charity. Your canceled check alone won't be enough.

        Your gifts to an organization during any year aren't aggregated to meet the $250 threshold. If you write a $200 check this month and another later in the year, for example, you won't need the special acknowledgment even though your total contribution exceeds the $250 limit. But don't try to avoid the new requirements by writing separate checks to the same organization on the same day, or over a very short time period--it might trigger IRS anti-abuse powers.

        You are expected to get the acknowledgment by the time you file your return for the contribution year. If you don't have it by April 15th, a filing extension can give you a little extra time to receive the acknowledgment. In the event that you file your return late, you can claim a deduction only if you can prove you had the written acknowledgment in hand by the filing deadline, including any filing extensions.

Here's what you need from charitable organizations to claim your deductions:

        If your contribution is an outright donation of $250 or more made in cash or by check, the organization must indicate the amount that you gave, and state that you received nothing in return.

       If your contribution is an outright donation of $250 or more of property, or cash and property, the organization must describe the property and state that you received nothing in return. It doesn't have to put a value on the property it received.

       Note: The IRS has promised to set up procedures allowing the charity to report directly to the IRS for you. But since procedures for doing this haven't been established and there is no timetable yet, it's safer for you to get the acknowledgments directly from the organization. 

        If you receive goods or services in return for your $250 or more contribution the acknowledgment you get from the charity generally also must give a description and good faith estimate of the value of those goods and services.

        However, certain types of customary membership benefits offered for a membership costing $75 or less per year are ignored. These benefits include discounts on parking and gift shop items. Token benefits are also disregarded. Generally, for 1999, a benefit worth no more than $7.40 is considered insubstantial. And if you make large contributions, you can receive back something worth as much as 2 percent of your contribution up to a maximum of $74. Importantly, these items are not just disregarded for the special proof or substantiation rules. That is, you won't have to subtract the value of disregarded items from your gift in arriving at your deduction.

        Special rules apply to contributions made to an organization by payroll deduction. You won't have to worry about getting any special acknowledgment from the organization, unless you have $250 or more withheld from any single paycheck. And, even in that case, you will be able to substantiate your contribution with pay stubs, your W-2 form, or any other document from your employer showing the amount withheld, and a pledge card or other document stating that the charity didn't give you goods or services in exchange. It's even OK for the employer to prepare the pledge card under the direction of the charity.

        As you can see, claiming charitable deductions can be complicated. Please call us if you aren't clear about what you will need to claim deductions for your contributions. There are additional recordkeeping rules for larger gifts of property. Also, if you plan any unusually large gifts, there are a number of other complicated limitations that apply, and there are many sophisticated ways to structure your contributions so that both you and the organization get maximum benefit.

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