Sharing your wealth with a preferred charity can reduce your taxable estate and ease your income tax liability. But, unless you meet IRS substantiation requirements, the Service could deny the corresponding deductions you’re claiming. Let’s look at the requirements for different asset types.
Generally, you can substantiate gifts of less than $250 with a canceled check, written receipt, or other reliable record (such as a credit card statement) that indicates the name of the charity and the amount and date of your gift.
If you donate more than $75 in exchange for goods or services other than intangible religious benefits (such as admission to religious ceremonies), the charity must provide you with a statement that:
- advises you that your deduction is limited to the amount by which your gift exceeds the value of those goods and services; and
- provides a good-faith estimate of that value.
Gifts of $250 or more require a “contemporaneous” written acknowledgment from the charity that includes the amount and date of your gift and the estimated value of any goods or services you received or a statement that no goods or services were received. If goods or services received consisted entirely of intangible religious benefits, a statement to that effect must be included which can be in email form.
To satisfy the contemporaneous requirement, you must have the acknowledgment in your possession before you file your income tax return. If you file later than the extended due date of your return, you must have received the acknowledgment by that extended due date.
If you make noncash gifts totaling more than $500 for the year, you must file Form 8283, “Noncash Charitable Contributions,” with your federal income tax return.
For gifts of property valued at more than $5,000 ($10,000 for closely held stock) you’ll need to obtain a “qualified appraisal” by a “qualified appraiser” and have the appraiser sign Sec. B, Part III, “Declaration of Appraiser.” If the property is valued at more than $500,000, you are required to attach a copy of the appraisal report to your return. No appraisal is required for publicly traded securities, regardless of value.
A qualified appraiser is a professional who meets certain education, experience, and accreditation requirements. A qualified appraisal must:
- be prepared, signed, and dated by a qualified appraiser other than the taxpayer or the recipient of the donation;
- not be made earlier than 60 days before the date you contribute the property. You must receive the appraisal before the due date (including extensions) of the return on which you first claim a deduction for the property;
- provide certain information about the property, the appraiser, and the valuation methods used; and
- not involve fees based on a percentage of the appraised value or deduction amount.
Don’t leave it to chance and potentially lose out on deductions.
If you have questions about compliance with IRS substantiation rules, contact me at SDitman@BerdonLLP.com or call your Berdon advisor.
Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.