Can You Substantiate Your Charitable Donations?

If you made a charitable gift last year and are claiming a deduction on your tax return, you need to make sure you have proper substantiation - written records or proof - of your gift.  The IRS has strict requirements as to what constitutes proper substantiation of a charitable gift.  The burden of proof is on you, the donor, to keep proper records of your giving.

The Basics

For most gifts paid by cash/check/credit card, you will need a letter from the charity stating:

1. The date of the gift
2. The amount of the gift
3. A statement that "no goods or services were provided" in exchange for the gift, if that was the case

You must have written acknowledgment from the charity for gifts of $250 or more.  Below that amount, a bank record such as a cancelled check will suffice.  In practice, most charities send written acknowledgments for all gifts regardless of amount as a way of thanking donors and cultivating relationships with them.

Still, I have seen "thank you" letters from charities which, while appropriately grateful for the gift, do not qualify as proper substantiation under the rules.  The culprit is usually the "no goods or services" statement, which is often missing.  If you don't have a written acknowledgment at all for a charitable gift of $250 or more, or if it does not have all the elements required by the IRS, contact the charity right away.

Quid Pro Quo

If you received a "quid pro quo" such as a dinner at an event, the charity needs to include in its written acknowledgment a description and good faith estimate of the value of goods or services provided.

Gifts Other Than Cash

Things get trickier with gifts of vehicles, tangible personal property, and other non-cash assets.  A written acknowledgment is still required, and additional substantiation might also be needed depending on the gift.  

Gifts of household items to thrift shops or similar organizations have a reputation of being over-valued by the donor.  Use a guide such as this one to properly document and value your donations of household items.

Qualified Appraisals

If you are claiming a deduction of more than $5,000 for something other than cash or publicly-traded securities, you generally will need to obtain a qualified appraisal from a "qualified appraiser," and the appraisal must include specific items and language in order to comply with the rules.  Be sure to follow the appraisal rules carefully so as not to risk your deduction in the event of an audit.

Deadline

The IRS requires that you have your substantiation documents by the time you actually file your return, or April 15, whichever is earlier.  So, if you have already filed your return, hopefully you have secured the proper substantiation for your gifts.

If you have yet to file - you only have a few days left to obtain your substantiation!  [Note: for 2016, the tax filing deadline is extended until April 18.]

The IRS' Publication 1771 summarizes the gift substantiation rules nicely. Click here to access it.

Donor beware!  The IRS has been coming down hard on taxpayers who don't have proper substantiation of their giving.  The rules are simple if the gift is simple but are tricky as the complexity of the gift increases.  Consult with your CPA, financial advisor, or the gift planning professional at the charity for advice and counsel on the gift substantiation rules.

No one wants their philanthropic giving to be called into question by the IRS.  With proper substantiation, you won't have to worry about that happening.