Many of the rules surrounding charitable donations have changed, and the IRS is leaning toward greater enforcement of its regulations.
As a result, if you’re making donations to a charitable organization, you need to keep meticulous records in case of an audit by the IRS, according to Annette Hoelzer, CPA, MT, a managing director of the Columbus office of SS&G Financial Services, Inc.
“It used to be you just had to keep your receipts and cancelled checks,” says Hoelzer. “Before, if you donated $1,000 to a charity and you had the check, that was good enough. Now, if you give more than $250 to a charity in one donation, you need to have written substantiation from the charity.”
Smart Business spoke with Hoelzer about the rules of deducting charitable donations and how to stay out of trouble with the IRS.
What documentation does a donor need to have when making a charitable contribution?
You need to have written substantiation that you actually made that donation to the charity. You also need substantiation from the charity that you didn’t receive anything in exchange for your contribution. For instance, if you make a contribution and, in return, you are allowed to attend a concert, the value of that concert is not part of your charitable donation.
Another example is charitable events, which many organizations host as fundraisers. If the cost of attending that event is $250, the charity has to come up with a fair market value of what you are getting, such as what you would pay at a restaurant for that same meal. If the determined value is $40, you can only deduct $210 of your contribution as your charitable donation, not the full $250.
This is an area where charities fall down because they don’t do it right. If a charity has a silent auction, it has to put a value on every item. If you bid on and win something, to the extent of the fair market value of that item, you aren’t allowed a charitable deduction for that.
Another area to watch is car donations. Previously, people looked up the value of the vehicle, found it was $2,700, and took that amount as a charitable donation. But if you donate a car, and the organization turns around and sells it, or has a third party sell it on its behalf for, say, $500, your charitable deduction is only the amount that the organization received for the vehicle. But if the vehicle is actually used by the charity, you have to determine a value for that vehicle.
For accounting purposes, if the total value of your noncash contribution is more than $500, you have to file form 8283, which provides more detail about the contribution. And if the value is more than $5,000, you generally must have an appraisal of the donated property.
Who is responsible for ensuring documentation, the donor or the charity?
The onus is not on the charity to provide that substantiation automatically, although from a practical standpoint, most do because they don’t want to upset their donors. But nothing in the rules says a charity needs to provide substantiation automatically. The onus is on the donor to ensure that he or she has documentation.
