The holiday season is critical for charities. According to Charity Navigator, a charity will (on average) receive 41% of its annual contributions between Thanksgiving and New Year’s. Another study by the Network for Good, which was reported by the Chronicle of Philanthropy found that (between 2003-2009) one-third of online gifts are made in December, and an astounding 22% are made in the last two days of the year.
While a seasonal sense of altruism may be the important to these results, I suspect end-of-the-year tax planning plays a major role for many donors. However, for many (if not most) donors those charitable deductions will not provide them with any tax benefit, because charitable donations are an itemized deduction. So, for the two-thirds of filers who take the standard deduction there is no tax benefit to charitable giving. Of course, there is still the warm feeling inside you get from doing something nice.
[For fellow tax nerds, over at Tax JOTWELL there is an interesting article available on the “Hypersalience” of charitable deductions (i.e. how misconceptions about the deductibility of charitable donations impact decisions).]
Also, for a small number of donors there are limitations on the amount of donations which may be deducted. For the vast majority of donors it won’t matter, but depending on the type of organization(s) the donations goes to, the deduction may be limited to 30% or 50% of your adjusted gross income.
More important (at least to most taxpayers) are the rules regarding substantiation of a deduction. All donations must be substantiated, but what constitutes sufficient substantiation depends on the value and nature of the donation. Here are the basics:
- Cash Contributions under $250 –
- Canceled checks or other bank record of a donation
- A written communication from the charity stating the name of the organization, the date and the amount of the contribution (these days many organizations provide these electronically).
- For contributions made by payroll deduction, the pay stub (or W-2) showing the amount deducted and a charity pledge card is sufficient.
- Cash Contributions of $250 or more – If a single cash contribution exceeds $250, a written acknowledgement of the donation from the charity is required. The acknowledgment must include the amount of the contribution, state any goods or services you received, and provide a good faith estimate of the value of such goods and services. If made by payroll deduction and more than $250 is withheld from a single paycheck the pledge card or other documentation must state that there were no goods and services provided to the donor.
- Non-Cash Contributions under $250 – A written statement from the charity providing its name, the date and location of the donation and a detailed list of the property contributed is required. If a formal receipt is not available or practical another reliable written record (providing the same information) may be sufficient.
- Non-cash contributions $250 but below $500. A written receipt is required which provides the name, date and location, and a statement of the value of the property donated. The receipt or acknowledgement must also state whether the donor received any goods or services in return, and the value of such.
There are significant additional requirements for non-cash contributions of $500 but below $5,000, and for contributions over $5,000. These requirements are generally related to how the property was acquired, substantiation of basis in the property, and valuation including some appraisal requirements.
For more information charitable contributions and the substantiation and disclosure requirements is available in IRS Publication 527 and Publication 1771. In addition the IRS has produced a very informative (and easy to follow) On-line Mini-course.
Finally, if you are considering making charitable contributions this year, feel free to review our directory of local non-profit organizations.