Substantiation Required for Charitable Gift Deductions

Nonprofit

Sep 23

You likely do not support charities simply for the tax benefits. However, donating to charity is one way to reduce your taxable income and the size of your taxable estate. If you itemize deductions on your federal tax return (instead of taking the standard deduction), you are generally allowed to deduct charitable donations.

But, of course, you must observe certain limits and rules — one of which is to substantiate your gifts with proper documentation. These are the IRS requirements.

Meeting Cash Substantiation Requirements

Charitable donations are an area where the IRS takes a “form over substance” approach. A gift may be perfectly legitimate, but if you fail to substantiate it properly, the deduction may be lost. This means that cash donations, regardless of the amount, must be substantiated with one of the following two methods:

1. Bank records. Such records can include bank statements, electronic fund transfer receipts, credit card statements, and canceled checks (including scanned images of both sides of a check).

2. Written communication. This can be a letter or email — typically in the form of a thank you note — from the charity. The document should show your name, the date of the contribution and the amount. A blank pledge card furnished by the charity is not sufficient.

Contemporaneous Written Acknowledgement

In addition to the above substantiation rules, cash donations of $250 or more require a contemporaneous written acknowledgement (CWA) from the charity. The CWA must detail the amount of your contribution, and a description and good faith estimate of the value of any goods or services provided in consideration (in whole or in part) for your donation.

A single document can be used to meet both the written communication and CWA requirements. For the CWA to be “contemporaneous,” you must obtain it by the earlier of the:

Extended due date of your tax return for the year you made the donation, or
Date you file your return.

If you make charitable donations via payroll deductions, you can substantiate them with a combination of an employer-provided document — such as Form W-2 or a pay stub — that shows the amount withheld and paid to the charity, and a pledge card or similar document. For a donation of $250 or more by payroll deduction, the pledge card or other document must also state that the charity does not provide any goods or services in consideration for the donation.

Documenting Other Types of Donations

Noncash donations of less than $250 must be substantiated with a receipt from the charity showing its name and address, the date of the contribution, and a detailed description of the property. For noncash donations of $250 or more, there are additional substantiation requirements, depending on the size of the donation.

For example, donations of $250 to $500 require a CWA. Donations over $500, but not more than $5,000, require both a CWA and completion and filing of Section A of Form 8283 with your tax return. Section A includes a description of the donated property along with its fair market value and the method of determining that value.

Donations over $5,000 require all the above, plus you must obtain a qualified appraisal of the property and file Section B of Form 8283 (signed by the appraiser and the charity). And there may be additional requirements in certain situations. If, for instance, you donate artwork valued at $20,000 or more, or make any donation valued over $500,000, you must attach a copy of the appraisal to your return.

Note one exception: Appraisals are not required for donations of publicly traded securities. Also, additional rules may apply for certain types of property, such as vehicles, clothing and household items, or securities.

Complex rules

If you have made a large donation or donated a variety of gifts with different substantiation requirements over the course of a year, you should work with an experienced tax advisor to prepare your tax return. The risk is that if you fail to provide the IRS with proper charitable gift documentation, the agency may deny your deduction.

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