When you give, you get. That’s true in the case of tax deductions for charitable contributions too, as long as you have records.
In July 2018, the IRS released final regulations on what’s required to substantiate deductions for charitable contributions. The final regulations make some changes to the temporary regulations that were issued in 2008.
In general, when you make a contribution of any amount to a qualified charity by cash, check or equivalents such as electronic funds transfers or debit cards, you have to keep records. Examples of records include cancelled checks, or a written receipt with the name of the organization, the amount, and the date of your contribution. (See internal revenue code section 170(f)(8).)
When you make a cash or noncash contribution of $250 or more, the record of your donation must be “contemporaneous.” In tax language, that means no later than the earlier of the date you file your return, or the extended due date, including extensions, of your return. In addition, the record has to include the amount you donated, whether you received any benefit in return and if so, an estimate of the amount of that benefit. (See internal revenue code section 170(f)(11).)
Here are some questions covered in the final regulations.
Some charitable organizations provide a blank pledge card that is filled out by the donor.
Based on the above substantiation rules, do you think these pledge cards are adequate substantiation to claim a charitable contribution on your federal income tax return?
When your deduction for all noncash gifts is more than $500, you file Form 8283, Noncash Charitable Contributions, with your federal income tax return. Form 8283 has two sections. You complete either, or both, depending on the type of property you donate and the amount you claim as a deduction.
Form 8283 asks for information on the donated property, including the name of the organization you donated to, a description of the property, and the value of your donation.
Based on the above rules related to required records, do you think Form 8283 is adequate substantiation to claim a charitable contribution deduction on your federal income tax return?
As a general rule, your charitable contribution deduction is limited to a percentage of your contribution base (adjusted gross income without regard to net operating losses). The percentage depends on the type of property you contribute. For example, under prior law, your deduction for all cash charitable contributions you made during a year could not be more than 50% of your contribution base for the year.
The Tax Cuts and Jobs Act of 2017 changed the 50% limit for tax returns beginning in 2018.
What is the new limit?
The final regulations relate to substantiating and reporting deductions for charitable contributions under section 170 of the internal revenue code. They reflect amendments to section 170 made by section 883 of the American Jobs Creation Act of 2004, and sections 1216, 1217, and 1219 of the Pension Protection Act of 2006, which added new rules for substantiating charitable contributions.
Under the current internal revenue code, you can claim a deduction for donations to charity for income, estate, and gift tax purposes.
However, the final regulations do not apply to estate and gift taxes.
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Section 170(f)(17) requires a taxpayer to maintain as a record of a contribution of a cash, check, or other monetary gift either a bank record or a written communication from the donee that shows the name of the donee organization, the date of the contribution, and the amount of the contribution.
The proposed and final regulations at section 1.170A–15(b)(2) provide that a bank record includes a statement from a financial institution, an electronic fund transfer receipt, a canceled check, a scanned image of both sides of a canceled check obtained from a bank website, or a credit card statement.
In addition, the proposed and final regulations provide that a written communication includes an email.
Because a blank pledge card provided by the donee organization to a donor does not show the information required under section 170(f)(17), it is not sufficient substantiation for a cash, check, or other monetary gift.
Although no format is prescribed for a contemporaneous written acknowledgment (for example, an email may qualify), a contemporaneous written acknowledgment of a contribution by the donee organization must contain all of the information required by section 170(f)(8)(B).
Moreover, section 170(f)(8)(A) states that the acknowledgment is made “by the donee organization.”
Only Section B, part IV of Form 8283, completed for property valued at over $5,000, is a donee acknowledgment, and this acknowledgment only contains some of the information required by section 170(f)(8)(B).
Accordingly, even a fully-completed Form 8283 does not satisfy the requirements of section 170(f)(8).
Under the Tax Cuts and Jobs Act, when you itemize you can deduct cash contributions up to 60% of your contribution base.
These regulations are promulgated under Jobs Act and Pension Protection Act provisions that apply only to income tax deductions for charitable contributions under section 170.
Though the basic requirements for a deductible charitable contribution for estate or gift tax purposes generally are the same as the requirements for a deductible charitable contribution for income tax purposes, the rules are found in different internal revenue code sections.
The rules for the estate tax charitable deduction are found in section 2055, and the rules for the gift tax charitable deduction are found in section 2522.