Cash Contributions of Less than $250 in Single Donation
For cash contributions, it’s not unusual to give small amounts without expecting a receipt, such as when you drop a $20 bill into the collection plate at church. These amounts may accumulate to a sizeable sum by year-end. Previously, if the donations were less than $250, you could either keep cancelled checks or reliable records, such as a list that you’ve prepared showing the dates, amounts donated, and charities. Under the new rules, however, it’s no longer sufficient to simply keep good records of these donations when you tally up the amount to claim as charitable contributions. Instead, cash contributions of less than $250 given in a single contribution are only deductible if you keep a bank record (most likely a cancelled check or credit card record) or written acknowledgement from the charity (donee) showing the name of the donee organization, the date of the contribution, and the amount of the contribution.
If you are likely to itemize deductions on your income tax return and typically make cash contributions of less than $250, you should make donations by check rather than cash, because that will easily satisfy the documentation requirements. Simply keeping good records of the donations will no longer be enough to claim the deduction.
We have to wonder how this will impact organizations like the Salvation Army. I have never seen anyone write a check and give it to the Santa bell ringers that come out a Christmas time.
Cash and Property Contributions of More than $250 in Single Donation
Contributions of Used Clothing and Household Items
If you donate used clothing or household items to charities, such as Goodwill, the items must be in “good condition or better” unless the items were worth more than $500 and a qualified appraisal report is attached to your tax return. The IRS has not yet defined what is meant by “good condition or better.” Thus, you might consider keeping a detailed list and photos of contributed items (unless the property is appraised). No new documentation is required, but to protect yourself in case of an IRS audit, you should, at a minimum, document that the donations were in good condition. Furthermore, the use of unattended drop-off sites should be reserved for items of minimal value. It may be difficult to substantiate the contributions without a receipt.
The IRS has just issued new rules that require donors of vehicles valued at more than $500 to attach a special form (Form 1098-C—Contributions of Motor Vehicles, Boats and Airplanes), which is received from the charity and reports the necessary information about the vehicle donation. (The form is optional for vehicle donations of $500 or less.) To claim the deduction for the vehicle valued at more than $500, you should attach Copy B to your tax return.
Property Contributions of More Than $5,000
Although the rules for substantiating this type of property haven’t changed, there are now stricter rules for what is considered a “qualified appraisal” and who is considered a “qualified appraiser.” You must have the appraisal done not earlier than 60 days before the donation and received by the due date (including extensions) of your tax return.
To claim the deduction, it’s important to dot all the “i’s” and cross all the “t’s” in following the requirements of a qualified appraisal. Furthermore, stiffer penalties now apply to both appraisers and taxpayers for substantial valuation misstatements.
The rules have changed therefore it is important to follow these recordkeeping requirements if you hope to claim the deduction for your donations because the IRS can and will disallow charitable deductions if these requirements aren’t met. If you would like more details about these or any other aspect of the new rules, please don’t hesitate to call.