As year-end approaches, many individuals begin to consider charitable gifts they’ll make during the holiday season—and many not-for-profits begin preparing for an influx of cash and other gifts.
Taxpayers can choose to donate cash or property to qualified charitable organizations. Either way, it results in an income tax deduction, but the choice gives donors some flexibility in how they fulfill their philanthropic desires. It’s important that recipient organizations know what their donors need to claim the corresponding charitable contribution deduction to ensure a smooth process for donors and organizations, regardless of the type of gift.
It comes down to a series of IRS documentation requirements, some related to the contribution itself and others to the value contributed. Under current tax law, there’s only one option for meeting the substantiation requirements. However, newly proposed regulations may add another option in the future.
Proposed regulations aside, under current tax law, donors are required to have a bank record or written communication from the charitable organization for any monetary contribution to claim a charitable contribution deduction. If any single contribution is at least $250, the donor must have a written acknowledgement from the organization. In general, the tax code requires that written acknowledgement include:
- The amount of cash and a description (but not the value) of any property other than cash contributed.
- A statement of whether the organization provided any goods or services in consideration for the donation.
- A description and good-faith estimate of the value of any goods or services provided in exchange for the contribution. (If the goods or services provided consisted solely of intangible religious benefits, a statement to that effect should be included.)
Additional limitations and disclosure requirements apply to certain types of property donations. Examples include:
- Used motor vehicles, boats, and airplanes
- Certain interests in buildings located in registered historic districts
- Taxidermy property
- Clothing and household items
The donor of property is responsible for determining the fair market value of the property contributed. However, if the donor is claiming a charitable contribution deduction of more than $5,000 for any one item (or group of similar items), an appraisal of the property may be required, and the organization may need to sign the second page of Form 8283 so that the donor can attach it to his or her federal income tax return.
Remember too that organizations willing to accept property donations should have a well-defined gift acceptance policy to guide staff in determining what donations the organization should consider for acceptance. In developing your organization’s gift acceptance policy, remember to document the acknowledgement requirements for each kind of property you’ll accept.
For more information on gift acceptance policies and written acknowledgement requirements, contact your Moss Adams professional.