The IRS loves to audit people who claim charitable deductions. The reason is that there are very strict record-keeping rules when it comes to charitable deductions and most people are not aware of them so the IRS usually finds a way to disallow the deduction, which of course triggers increased taxes, penalties and interest. Do not let this happen to you.
Generally, to claim a charitable contribution deduction for gifts of $250 or more in cash or property to charity, donors must get a written acknowledgment from the charity. This is usually not a big deal. For donations of property, the acknowledgment must include, among other things, a description of the items contributed. Typically the place you donate the property gives you a blank receipt. So you need to fill it out and make sure you list all the items donate. You also need to determine the value of the property contributed if it is not cash, which sometimes can cause problems if the amount determined is incorrect.
The law also requires that taxpayers have all acknowledgments in hand beforefiling their tax return. The IRS does not like it when you go back to the charity to get an acknowledgment. That said I have done this in the past and have been able to substantiate the deduction to the IRS' satisfaction. However, I do not recommend doing this if you can avoid it.
Only taxpayers who itemize their deductions can claim gifts to charity. You should also know there are special reporting requirements that apply to vehicle donations and taxpayers wishing to claim these donations must attach any required documents to their return. For example, Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the return. Furthermore, the deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500.
Additionally, there are a number of bogus groups masquerading as a charitable organization to attract donations from unsuspecting contributors. This is one of the top 12 abuses listed by the IRS for 2015. You should take a few extra minutes to ensure your hard-earned money or property goes to legitimate and currently eligible charity.
Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. Also, don’t give out personal financial information, such as Social Security numbers or passwords to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money. People use credit card numbers to make legitimate donations but please be very careful when you are speaking with someone who called you.
Also, don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.
If you have questions or concerns about a charitable deduction, or would like representation that includes advising you on the tax aspects of business transactions and how they should be reported on tax return to avoid tax problems or place you in the best position on the occasion you are contacted by the IRS or the state tax authorities, please contact the Wilson Tax Law Group.
To schedule an initial consultation, please contact our Orange County tax lawyers at (949) 397-2292 or use our online contact form.