written by Joe Page
With the end of another year quickly approaching, many may be considering making charitable contributions as part of their year-end tax planning. In order to ensure your donation is tax deductible care must be taken if your donation exceeds $250. Your donation may not be tax deductible unless very strict IRS guidelines are followed.
When the value of a single donation exceeds $250, the donation must be documented by a contemporaneous written acknowledgement (CWA) from the charity. The IRS rules indicate the CWA must include the amount of cash and a description (but not value) of any property other than cash contributed; whether the donee organization provided any goods or services in consideration, in whole or in part, for any property contributed; and a description and good faith estimate of the value of any goods or services provided by the donee to the donor.
Strict adherence to the above documentation standards is required or you will run the risk of your contribution deduction being challenged by the IRS. For instance, in a recent tax court decision (Durden v. IRS) the taxpayer was denied a charitable contribution deduction for contributions made to their church solely because the church’s acknowledgement of the contribution failed to indicate that no goods or services where provided to the donor in exchange for their contributions.
Other donations that can be denied a charitable contribution deduction include earmarked donations. Often a donor may contribute to a fund established benefit a specific person for various reasons such as medical bills or natural disasters. Such direct payments to specific individuals are not tax deductible contributions. Only contributions to, or for the use of, a qualified tax-exempt organization are tax deductible.
It may be possible for a donor to work with a qualified charitable organization to accomplish their desired objective, but care must be taken or the donation deduction could be challenged. Primarily, the charitable organization must have the ability to do as they wish (within their charitable purpose) with the donated funds. If the charity is obligated to transfer the funds to a specific individual (operates as just a pass through entity) the donation deduction will likely get challenged by the IRS upon audit.
For more information, please contact us today at 417-881-0145.