I. Bank Records or Written Communications
a. Contributions of Cash, Check or Credit
If the donation is a contribution of cash, check, or credit, the donor cannot claim a tax deduction unless he or she maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or letter) showing the name of the charity, the date of the contribution, and the amount of the contribution. In lieu of a cancelled check, the IRS will accept a bank statement showing the date of the check, the amount and the payee or a copy of the check from an online banking website.
b. Payroll Deductions
For charitable contributions made by payroll deduction, the donor may use both of the following documents as written communication from the charity: (1) a pay stub, Form W-2, and Tax Statement, or other employer-furnished document furnished by the employer that shows the amount withheld and paid to a charitable organization, and (2) a pledge card prepared by or at the direction of the charitable organization. However, if a donor makes a single contribution of $250 or more by payroll deduction, the pledge card must include a statement to the effect that the organization does not provide goods or services in consideration for contributions to the organization by payroll deduction.
II. Written Acknowledgement from a Charity
For a donor to claim a tax deduction of $250 or more, he or she must obtain a contemporaneous written acknowledgement from the charitable organization. The written acknowledgment should contain the following information:
The name of the charitable organization
The amount of cash contributed
A description (but not the value) of any non-cash contributed
A statement that no goods or services were provided by the organization in return for the contribution (if that was the case)
A description and good faith estimate of the value of goods or services, if any, that the organization provided in return for the contribution
A statement that goods and services, if any, that the organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case
Each donation of $250 or more may either be separately acknowledged by the charity, or with a single annual donation summary. Separate donations of less than $250 are not required to be aggregated. For example, a written statement is not required for annual contributions of more than $250 to a church if the contributions were paid periodically in amounts less than $250. There is no I.R.S. form for these acknowledgements, thus any letter, postcard or email with the previous information will be acceptable. The acknowledgement is not required to be attached to the donor’s individual tax return, but instead should be retained so the donation should be substantiated.
For the written acknowledgment to be considered contemporaneous with the contribution, a donor must receive the acknowledgment by the earlier of: the date on which the donor actually files his or her individual federal income tax return for the year of the contribution; or the due date (including extensions) of the return. A statement obtained at the time of an audit of a tax return will not be considered contemporaneous.
III. Goods and Services
If a charity provides goods or services in exchange for a contribution, the written acknowledgement must provide a good faith estimate of the value of the “quid pro quo” received by the donor and the charitable deduction must be reduced by the value of the goods or services received.
Insubstantial goods and services do not have to be described in an acknowledgement.
Good and services are considered to be insubstantial if the payment occurs in the context of a fund-raising campaign in which a charitable organization informs the donor of the amount of the contribution that is a deductible contribution, and: (1) the fair market value of the benefits received does not exceed the lesser of 2 percent of the payment or $91, or (2) the payment is at least $45.50, the only items provided bear the organization’s name or logo (e.g., calendars, mugs, or posters), and the cost of these items is within the limit for “low-cost articles,” which is $9.10. Free, unordered low-cost articles are also considered to be insubstantial.
An annual membership benefit is also considered to be insubstantial if it is provided in exchange for an annual payment of $75 or less and consists of annual recurring rights or privileges, such as: (1) free or discounted admissions to the charitable organization’s facilities or events, (2) discounts on purchases from the organization’s gift shop, (3) free or discounted parking, (4) free or discounted admission to member-only events sponsored by an organization, where a per-person cost (not including overhead) is within the “low-cost articles” limits.
IV. Unreimbursed Expenses
Many taxpayers volunteer for charitable organizations. Although the value of the services rendered is not deductible, out-of-pocket, unreimbursed expenses, such as those for uniforms, telephone or equipment) incurred to render the services are deductible contributions. Travel expenses, including meals and lodging, incurred to provide services away from home are also deductible if there is no significant element of personal pleasure, recreation or vacation. Volunteers may claim a deduction at the rate of 14 cents per mile for use of an auto in providing services to a charity.
If a donor makes a single contribution of $250 or more in the form of unreimbursed expenses, e.g., out-of-pocket transportation expenses incurred in order to perform services for a charitable organization, a deduction will be allowed only if the donor obtains a written acknowledgment from the organization which includes: (1) a description of the services provided by the donor; (2) a statement of whether or not the organization provided goods or services in return for the contribution; and (3) a description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution.
If you have questions or would like additional information, please contact you attorney at Luper Neidenthal & Logan.
TO COMPLY WITH CERTAIN U.S. TREASURY REGULATIONS, WE INFORM YOU THAT ANY FEDERAL TAX ADVICE CONTAINED IN THIS ARTICLE, IS NOT A COVERED OPINION AS DESCRIBED IN TREASURY DEPARTMENT CIRCULAR 230 AND THEREFORE CANNOT BE RELIED UPON TO AVOID ANY TAX PENALTIES.