Getting audited by the IRS is rare but it does happen in some cases and one of the red flags that help trigger an audit is claiming charitable donations. While you want to get to take the tax deduction, you do not want to unnecessarily trigger an investigation. One of the ways to help ensure that an audit does not happen is to have proper record keeping for all of your charitable donations.
What Qualifies as a Charitable Donation?
In order to make your charitable donation qualify for a tax deduction, you must make sure that anything you donate, whether it is cash or a tangible item, is to an organization that is qualified. You can actually check via the Internal Revenue Service’s website with their online Exempt Organizations Select Check tool.
Documentation Requirements and Proper Record Keeping
The main thing that you want to do is keep all of your records of any charitable donation. This means that you will want to have backup of what you donated, the amount, date, and means by which you donated. For instance, to show proof, you can keep the following:
- Bank statements
- Cancelled checks
- Credit card statements
- Written statement from the charity
- Phone bill (for text donations)
If you do get a written statement from the charity, make sure everything is filled out to back up your claim such as the date that charitable donation took place, the name of the charity, and the amount that the donation was for. If your donation is over the amount of $250 (this is per donation, not accumulative) then you must get this written statement even if you have other backup such as your bank statement. This is especially important for tangible items instead of cash donations.
For instance, if you donate a car and the value is over $250 then make sure that you have written documentation from the charity you donated to.
Whether you donate to charities often or it is once or twice a year, you will want to have all of your receipts and backup information in a place where it is easily accessed.
The best way to ensure that you can always find everything is to scan your receipts and any backup documentation first and have it on a hard drive. Then, you should have the actual hard copies in a place where donation information is always kept or at the very least, where your tax documentation is kept throughout the year.
There are also other documentation requirements on higher ticket items. For example, Form 8283 Section A is required for those over $500 but if you have a non-cash property donation that is over the amount of $5000, in some cases you will have to get an appraisal of the value from a third party that is not involved in the donation.
Non-Cash or Non-Tangible Donations
There are some charitable donations that you are allowed to deduct that do not fall under the rule of cash or tangible item donations. These include:
- Expenses Out of Pocket. This includes working as a volunteer for a qualified charitable organization.
- Expenses for Transportation. If you are performing charitable work that you must travel to, you are able to deduct your cost of transportation like traveling to the place and from the place you are working.
- Housing Students Expenses. This includes if you are housing a student and incur expenses if that student is sponsored by a qualified charitable organization.
If you want to learn more about charitable donations, keeping organized to avoid an audit, or anything else tax related, feel free to contact us and we will be more than happy to answer any questions you have.