Are you thinking about making a charitable donation this year? If so, there are a few things to consider before you write that check or transfer that car or other property, especially if you’re expecting a tax deduction.
First, the charitable organization must be approved to accept deductible contributions. To determine if the organization is authorized, check this IRS link: http://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations. If the organization is not listed, your contribution may not be deductible on your income taxes. Each year I get calls from clients that want to donate to a nonprofit organization that has not obtained the proper 501(c)(3) status and I have to break the news that I’m sure the contribution will be appreciated, but they won’t be able to deduct the contribution for tax purposes.
Second, for cash (or checks or credit card) donations of over $250 you need to have a receipt on the organization’s letterhead issued at the time of the gift with specific language indicating the amount of the gift and that you did not receive anything of value in return for your gift. Without that receipt and evidence of payment, like a cancelled check, your deduction will likely be denied if you are audited.
Third, if you are donating a vehicle (ie, car, truck or boat), and expect to deduct the value of the vehicle, make sure that you have received a realistic appraisal for the vehicle from a knowledgeable appraiser and that you receive a receipt on the organization’s letterhead. The same rules apply on the receipt as for cash gifts. An unrealistic value place on that vehicle may very well cause your return to be reviewed.
Fourth, if you are donating furniture or other items of personal property, make sure that you get a receipt and have checked the organization’s website for their estimates of value of various kinds of goods. For example, the Salvation Army (http://minneapolis.satruck.org/donation-value-guide) has a value guide on its site for all types of items. In a recent case the tax court denied deductions for donations of cash and property totaling $37,000 by a couple for lack of documentation and assessed a 20% negligence penalty. (Kunkel, TC Memo. 2015-71). That turned out to be a very expensive contribution.
Fifth, if you are donating publically traded stock, make sure that you have discussed the donation with your CPA or attorney, so that you know how to complete the transaction and know the value of your donation. If you are donating stock in a privately held company, the rules can be very complicated. For example, if your company is taxed as an S corp, the S corp election could be jeopardized. Consultation with an attorney and CPA is always wise under those circumstances.
Sixth, if you are donating real estate, make sure that you have your attorney involved in the negotiation of the donation with the charity. Many charitable organizations have special rules regarding the acceptance of a contribution of real estate. Depending on the value of the real estate, a “qualified appraisal” from a “qualified appraiser” will be necessary. Those terms have special meaning under the IRS Code and the Treasury Regulations. In a recent case, a taxpayer donated a 34 unit apartment building to a charity and put a value on the gift of $499,000. Although appraisals had valued the property at as much as $1.8 million, the charitable organization wanted the property presold before the gift was completed and the highest offer was $60,000. The tax court upheld a denial of the deduction of $499,000 for lack of a qualified appraisal. (Alli v. Commissioner, TC Memo 2014-15).
When it comes to planning for a substantial charitable contribution of cash or property it is well worth consulting with a qualified attorney and or CPA. Feel free to contact me regarding any questions involving charitable contributions or other issues.