Charitable Contribution Deduction Records

Contributions to qualified charities are a well-known tax deduction for both businesses and individuals. Maintaining the right records is crucial to keeping your tax deduction under audit. The IRS has specific documentation requirements for contributions to charities. Make sure your deduction counts by following the IRS substantiation and disclosure requirements for charitable contributions.

For all donations, taxpayers must retain written proof of payment that may be in the form of a bank record (e.g. cancelled check) or written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the dollar amount of the contribution.

For contributions of $250 or more, the IRS requires written acknowledgement from the charitable organization. The written acknowledgement must contain all of the following information to take the deduction – per the IRS:

1. “Name of the organization;
2. Amount of cash contribution;
3. Description (but not value) of non-cash contribution;
4. Statement that no goods or services were provided by the organization, if that is the case;
5. Description and good faith estimate of the value of goods or services, if any, that organization provided in return for the contribution; and
6. Statement that goods or services, if any, that the organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case”

In a recent audit, a taxpayer was denied a charitable contribution deduction for acknowledgement letters that did not contain the statement “no goods or services were provided by the organization“. The troubling issue we have found is that many nonprofit organization acknowledgment letters do not contain this language. A review of your contribution letters for donations of $250 or more will allow you to ensure that your charitable contribution deduction holds up under audit. If your letters are missing this required language, contact the charitable organization and request a new acknowledgement letter containing the six required elements.

Donors are required to have these documents in hand at the earlier of:

1. the date your tax return is filed, or
2. the extended due date of your tax return

These documents should be retained with a copy of your tax return as support for taking the deduction on your return.  Documentation obtained after filing your return or upon audit will be denied by the IRS.

Don’t forget, not all nonprofits are tax deductible charities – check the IRS database to make sure your charitable contribution is deductible http://www.irs.gov/Charities-&-Non-Profits/Search-for-Charities.