Posted January 8th, 2018

Charitable Deductions– Revisiting the Basics

After much debate, the new tax law has kept the charitable deduction intact. But donors must still follow IRS procedures in order to be able to deduct their gifts. Here’s how you can help your  donors safeguard their charitable deductions.

The new tax act just passed by Congress will increase the standard deduction to $12,000 for individuals and $24,000 for couples. These changes may cause fewer individuals to itemize their charitable gifts, but the IRS rules governing the proper procedures for itemizing have not changed and must still be followed precisely to ensure donors receive the appropriate deduction for their gifts.

In recent years, individuals have been responsible for approximately 80% of total giving in America. Additionally, an average of 80% of the dollar value of gifts by living individuals have been itemized as charitable contribution deductions on tax returns. IRS rules and regulations set out requirements that must be followed by both the donor and the charitable recipient, and increasingly, the IRS has been taking a stiffer stance in making sure these rules are followed and disallowing deductions for gifts that do not comply with various rules and regulations.

There have been cases where the deductions for very large gifts have been disallowed because the charity’s gift acknowledgment did not contain the proper language, or a qualified appraisal for a noncash gift was not obtained in time or did not meet IRS requirements.

Itemizing gifts: the basics

There are several thresholds that must be met in order to itemize a charitable gift for tax purposes.

  1. The donor must have a bank record or written communication from the charitable organization or institution.
  2. The charitable recipient is required to provide a written acknowledgment for gifts greater than $75, where a donor received any goods or services in exchange. The value (beyond token gifts) of the benefits conferred must be subtracted from the gift to determine the deductible amount (see “Taxing Matters: Token Gifts,” October 2015 Give & Take).
  3. For gifts greater than $250, the donor is responsible for obtaining a written acknowledgment with the required disclosure language from the charity in order to claim the gift as an itemized deduction on their federal income tax return.
  4. For noncash gifts greater than $500, the donor must complete Form 8283 and attach that form to his or her tax return. Note that special rules apply for contributions of motor vehicles including cars, trucks, airplanes and boats. (See IRS publications 4302 and 4303 for more information on vehicle donations.)
  5. More valuable noncash gifts ($5,000 or more in most cases) other than publicly traded securities require the donor to obtain a qualified appraisal that meets very specific requirements. These gifts are also reported on IRS Form 8283 and must be signed by the donor, the qualified appraiser and the charity. This must be done prior to the filing of the tax return to avoid the loss of the deduction for the gift. IRS publication 561 should be referred to for determining the value of property contributed to charity.

Written acknowledgment requirements

In order to protect the donor’s deduction for charitable gifts, the charity should provide a contemporaneous written acknowledgment containing the following:

  • The name of the charitable organization
  • Amount of any cash contributed
  • Description of any noncash contribution
  • A statement that no goods or services were provided to the donor in return for the gift, if this is the case
  • A description and good faith estimate of the value of any goods or services provided, if any
  • A statement that the goods or services provided consisted entirely of intangible religious benefits if that was the case.

Separate acknowledgments may be provided for multiple contributions, or a summary of gifts made over the year is acceptable for tax purposes. The written gift acknowledgment may be in the form of a letter, postcard or computer-generated form. ■

For more information, see the Sharpe Group White Paper “Gift Substantiation in a Nutshell.”

 

Examples of written acknowledgments

“Thank you for your cash contribution of $300 that (organization’s name) received on December 12, 2017. No goods or services were provided in exchange for your contribution.”

“Thank you for your cash contribution of $350 that (organization’s name) received on May 6, 2017. As a thank-you for your contribution, we gave you a cookbook with an estimated fair market value of $60.” “Thank you for your contribution of a used oak baby crib and matching dresser that (organization’s name) received on March 15, 2017. No goods or services were provided in exchange for your contribution.”

The following is an example of a written acknowledgment when a charitable organization accepts contributions in the name of one of its activities:

“Thank you for your contribution of $450 to (organization’s name) made in the name of its Special Relief Fund program. No goods or services were provided in exchange for your contribution.” ■

The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

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