What to Keep When You Give: Documenting Your Charitable Donations
December 16, 2015 | Your Finances
You know the questions will come at tax time: Did you make any charitable contributions? Of course. Did you document that giving? Sigh. Maybe not well enough.
As we're in the middle of the season of thanks and giving, now is as good a time as any to improve your record-keeping.
“First, you need to know what types of contributions are deductible and what you need to save to prove that you gave,” said Patrick Bodden, senior advanced planning attorney at Northwestern Mutual. “Then, choose a system that works for you—whether it’s low-tech or high-tech—to save and organize everything you’ll need when you file your taxes.”
What Counts as a Charitable Donation?
Generally, you can take a tax deduction for any money or property you donate to a qualified charitable organization (not to individuals, political organizations or candidates). Charitable nonprofits have to apply to the IRS to become “qualified.” A charity should be able to tell you if it qualifies, or you can search the IRS website’s list of exempt organizations.
Once you know you’re giving to a qualified organization, you need to have appropriate documentation to meet IRS requirements. The rules vary based on what you give. Are you donating cash or property? What’s the value of your donation?
How to Document Cash Contributions
You can make a cash contribution by giving cash or a check or by using a credit or debit card. You’ll need a record that includes the name of the charity and the date and amount of the contribution. One of the following, showing the date and amount of your contribution, can substantiate charitable contributions:
- A bank record, like a canceled check or a bank or credit card statement.
- A receipt, letter or other written communication from the qualified charity.
If your cash donation is worth more than $250, a canceled check or bank statement will not suffice. You must also have the appropriate written acknowledgement from the qualified charity.
Many charitable organizations routinely provide receipts. If yours doesn’t, ask for the documentation. And don’t wait until April. You’ll need everything in hand before your tax filing date.
Tracking Noncash Contributions Is More Complex
What if you give clothing to a nonprofit group, donate a microwave to a homeless shelter or contribute a laptop to a silent auction? The documentation you need for donations like these depends on the item’s value. The higher the value, the more stringent the requirements.
To assess your donation’s value, consider what a thrift store might charge for the item. The IRS expects to see the property’s “fair market value,” which is the amount a “willing buyer would pay and a willing seller would accept.” Some charitable organizations, such as The Salvation Army, publish value guides for items they typically receive.
Now, what records to keep? In general, here’s what you need for various levels of fair market value:
- Less than $250: A receipt, letter or other written confirmation from the charitable organization that shows the organization’s name, when and where you donated and a description of what you gave. You must also keep reliable written records for each item that is contributed.
- $250 to $500: An appropriate contemporaneous written acknowledgement of your contribution from the qualified organization as well as reliable written records for each contributed item.
- More than $500 but not more than $5,000: Same as required for lesser values, plus written information about when and how you came to own the property (purchase, inheritance, gift, etc.). You will also need the tax basis for the item, which might be how much you initially paid for it.
- More than $5,000: Everything above, plus you will generally also need a qualified written appraisal of the property.
Keeping Track of It All
Now that you know what you need to keep, how will you do it?
“Different systems work for different people,” said Bodden. “It’s important to figure out what works for you, and then stick with it. Accurate recordkeeping is critical.” An accountant or attorney can help you establish an appropriate system for recordkeeping.
If you’re the no-tech type, designate a file folder to hold receipts, photos of donations and other documentation throughout the year. For added organization, include a tracking sheet where you can jot the date, charitable cause, item(s) and value of each donation.
If you already use technology to stay organized, you may have a tool that will help you track charitable donations. Programs like Evernote and OneNote let you scan, import and store receipts, photos and other data in an organized system you can search and assemble at tax time.
If you prefer a tool designed specifically for the task, a free or low-cost app or online tracker could help you capture information you need throughout the year—with convenient options for output when you’re ready to prepare your taxes. Two possibilities are iDonatedIt and TurboTax ItsDeductible.
“Saving the necessary records is half the battle,” said Bodden. “Knowing the rules is the other half.” For example, there are limits (and exceptions) on how much you can deduct. For a more detailed understanding of the tax rules about deductions and recordkeeping, review IRS publication 526, which talks all about charitable contributions. For further guidance on keeping it all straight—and how your donations affect your overall financial plan—speak with a financial professional, a tax advisor or an attorney.