Deductions and Documentation for Charitable Contributions

Mar 31, 2016

Before filing your 1040, you will need to compile the charitable contributions you made throughout the year. The IRS allows you to deduct both cash and noncash donations on your schedule A, along with other itemized deductions. There are specific rules for cash contributions. These can be made by way of a cash, check, electronic funds transfer, debit or credit card, or payroll deductions. You will need to keep proper documentation in case your contribution is questioned.

In order for your donation to be deductible, it must be donated to a “qualified” organization. These include nonprofit groups, public charities, and educational institutions. If you are unsure about the qualifications of an organization, you can use an IRS app to help you determine the validity.

If you donate to a charity but receive a benefit in return, such as dinner or merchandise, then you can only deduct the amount that exceeds the fair market value of the benefit. For example, if you pay $100 for an event and receive a dinner that is worth $30, then your deduction will be $70. That $70 is the difference between the $100 you paid and the $30 value of the dinner.

Various rules apply regarding documentation based on your donation being over $250. If your donation is under $250, all you need is a bank record, such as a print out of your monthly bank or credit card statement. You could also use a canceled check. If you cannot provide such, you may use a written letter from the charitable organization with your name, the amount donated and the date on which you donated. If you have a payroll contribution you can use your paystub, W-2, or a letter from your employer with the amount and date you donated. In addition, you may be required to present a pledge card or other documentation with the name of the charitable organization.

If your cash donation is over $250, you will required additional information above and beyond your bank statement. A written letter from the charitable organization along with a description of any goods or services provided will be obligatory. If you received any benefit from your gift, then the letter must state what was provided and the value of that benefit. You may deduct the net amount.

You do not have to combine separate donations to the same organization when determining if your gift is over $250. For example, if you make a monthly donation to the same organization of $40 for a total of $480 for the year, this is not considered a gift over $250. You are permitted to treat each donation separately. If you have two separate donations to the same organization which over $250 then you will need documentation for each.

If you require assistance in determining your contribution status or have questions about gifting to a local charity, please feel free to a William Vaughan Company representative today (419) 891-1040.

By: Brittany Jennings, Staff Accountant

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