More Than Accounting

IRS Crackdown on Charitable Contributions

Posted by Rhonda Spaulding on October 26, 2007

The IRS has decided to find all of those people who lie about how much they give to the Salvation Army in front of Walmart each Christmas season by requiring receipts for every donation. In the past, you were able to deduct cash contributions that were less than $250 without a receipt. However, this year you need to have a receipt, bank statement, credit card statement or canceled check for every penny you drop in the bucket if you want to deduct it on your tax return. Bank statements and credit card receipts must have the name of the charity, amount and the date posted. For contributions in excess of $250 you must have a receipt from the charity just as in prior years.

If you give by way of payroll deduction, keep your W-2 and a pledge card with the name of the charity. For payroll deductions of $250 or more, the pledge card or other document prepared by the donee organization must also include a statement that the organization does not provide goods or services in whole or partial consideration for any contributions made to the organization via payroll deduction.

In addition, they have also cracked down on the non-cash contributions of clothing and household items. As of August 17, 2006, any clothing or household items donated must be in “good or better condition”. How are we supposed to prove that our old sweaters were in “good or better condition”? One man’s junk is another man’s treasure, right? This standard allows the IRS to deny ALL clothing and household goods deductions. It has made it almost impossible for a taxpayer to sustain this deduction in an audit, even if it is legitimate. If you plan to deduct donations for these types of goods, you might want to take pictures of what you donate or get an appraisal, but who would do an appraisal on someone’s old jeans? It is quickly becoming apparent that these types of donations are just not going to be deductible. According to the IRS, American’s deducted $9 billion for these items on their 2003 tax returns. While some of that might be overstated, I assume that most of it is legitimate and much more is given that isn’t deducted. There are many people like myself who don’t even bother to keep track of these items. I would venture to say that these unreported donations would offset any fraudulent claims anyway.

I am pretty sure the deduction for contributions was put in place to encourage donations to charitable organizations. Will this new law discourage people from giving that $5 to the Salvation Army or prevent someone from giving a $10 bill to the American Red Cross? Perhaps, but I don’t think America is the most generous nation on earth because it is deductible on our tax returns. Keep giving but maybe you just need to write more checks!

UPDATE: For those who might doubt my last comment about the generosity of the American people, read this story about the donations for the people in California displaced by the wildfires… “Donations Pour in for Calif. Fire Victims”

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