Episode 232 – Before you try to take an income tax deduction for the charitable gifts you made during the tax year, make sure you comply with the various IRS requirements for documentation and qualification of the donation.

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, Documentation of Charitable Gifts.

Many people make charitable gifts each year. Often, the donation is in cash. Other times, it could be a non-cash asset like a car, furniture, used clothing, collectibles, etc. Charitable donations may yield income tax deductions, but before you can qualify for the deduction, the IRS requires you to comply with certain requirements and to provide certain documentation.

We’ll review a few of the main requirements, but qualifying for a deduction can get complicated. IRS Publication 561 provides detailed guidance on how to value certain types of property such as securities, jewelry, used clothing, artwork, furniture, automobiles, and other items. It also provides guidance on how to document charitable gifts and how to qualify for a tax deduction. Of course, your best course of action is to consult with your tax advisor.

For contributions of cash, including checks or credit card donations, you must maintain a record of the contribution. That could be in the form of bank records or a receipt from the charity that includes the name of the organization, the amount, and the date of the contribution. If the contribution is $250 or more, you must also obtain, a contemporaneous written acknowledgment from the charity indicating the amount of the donation and a description of any property, other than cash contributed. The acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services. This is commonly referred to as the “contemporaneous written acknowledgment” requirement.

For each non-cash contribution, a determination of the fair market value of that asset must be determined. Depending upon the type of asset being donated, that determination could be difficult and may involve the hiring of a qualified independent appraiser. What makes the appraiser a “qualified” appraiser is the requirement that the individual meet certain qualifications, including holding a professional designation from a recognized appraisal institution, minimum education requirements, and more. Again, refer to IRS Publication 561 and your tax advisor for more information.

IRS Form 8283 is also required for each non-cash contribution or contribution of a group of similar items exceeding $500. It is also required when certain non-cash donations are made of specific types of property, such as publicly traded securities or an automobile.

Generally, for non-cash contributions of property exceeding $5,000, a qualified appraisal of the property is required. In order for the appraisal to be considered “qualified,” it must meet certain requirements spelled out in IRS Publication 561. The appraisal must be in writing and signed and dated by a qualified independent appraiser. You must also obtain a contemporaneous written acknowledgement from the charity, as well as file Form 8283 with your income tax return. A copy of the appraisal is not required with the tax return. However, if the donation exceeds $500,000, then the qualified appraisal must be attached to the tax return.

As you can tell, qualifying a charitable contribution of non-cash assets, for an income tax deduction, may require several stringent measures. Failure to satisfy the requirements may result in the denial of your charitable income tax deduction. For more information, consult with IRS Publication 561 and your tax advisor.

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information.

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.