Thanksgiving to New Year’s is a time for holiday generosity and tax-minimizing thrift. Last year, about 25 percent of Pennsylvanians who filed federal individual tax returns claimed tax deductions for charitable donations, to the tune of $5.8 billion.
Individuals have some basic rules to follow to claim the tax savings, but they’re not alone. Charitable organizations benefiting from the generosity and thrift of Pennsylvania’s tax-savvy donors also have some basic rules to follow to ensure that their donors’ past contributions qualify as tax-deductible.
By following Internal Revenue Service rules and through mutual support, taxpayers and charitable organizations both benefit.
To receive tax-deductible contributions, charitable organizations must be officially recognized as tax-exempt. To maintain their tax-exempt status, charities need to comply with reporting and disclosure rules.
Tax-exempt organizations generally need to file annual returns with the IRS. Additionally, they need to make copies of certain tax returns available for public viewing. Specifics on filing and disclosure requirements can be found in the Charities & Nonprofits pages of the IRS website and at www.StayExempt.IRS.gov.
Donors have options to verify the tax-exempt status of charitable organizations. They may use the Exempt Organizations Select Check tool and/or check Publication 78, Cumulative Listing of Exempt Organizations, both online at www.IRS.gov. Organizations listed are considered to be tax-exempt as of the listing date. Donations to listed organizations are generally tax-deductible.
Donors need to maintain written records of their cash and non-cash contributions. In some cases, a canceled check, payroll deduction record, or bank or credit card statement showing the name of the charity, the date and the amount of the cash donation will suffice.
For contributions worth $250 or more, additional documentation is needed—specifically, a contemporaneous, written acknowledgment of the contribution from the charitable organization. Charities can both thank and help their supporters by providing them with the statements required for tax savings. Statements should include the following:
- Name of organization
- Amount of the cash contribution and/or description (but not value) of the non-cash contribution
- When applicable, a declaration that no goods or services were provided by the organization in return for the contribution
- When applicable, a description and good faith estimate of the value of goods or services provided in return for the contribution
- When applicable, a declaration that goods or services, if any, provided in return for the contribution consisted entirely of intangible religious benefits
Organizations can opt to provide donors with either paper or electronic copies of the acknowledgments. While there are no specific IRS forms for “thank-you” acknowledgments – letters, postcards, or computer-generated forms with the above information are acceptable – some examples of written acknowledgments should provide some formatting help:
- “Thank you for your cash contribution of $300 that (organization’s name) received on Dec. 12, 2012. No goods or services were provided in exchange for your contribution.”
- “Thank you for your cash contribution of $350 that (organization’s name) received on May 6, 2012. In exchange for your contribution, we gave you a cookbook with an estimated fair market value of $60.”
- “Thank you for your contribution of a used oak baby crib and matching dresser that (organization’s name) received on March 15, 2012. No goods or services were provided in exchange for your contribution.”
- “Thank you for your contribution of $450 to (organization’s name) made in the name of its Special Relief Fund program, received on January 16, 2012. No goods or services were provided in exchange for your contribution.”
Donors should keep the “thank-yous” with their tax records, rather than attaching them to their individual income tax return. However, donors whose total deductions for all non-cash contributions for the year is more than $500 do need to attach something extra—a completed IRS Form 8283, Noncash Charitable Contributions—to their returns.
Donors who claim deductions for contributing noncash property worth $5,000 or less must fill out Form 8283, Section A. Additionally, those who donate an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.
Those seeking more information on charitable contributions can access charities-related tax tips and the following at www.IRS.gov: Form 8283 and its instructions; Publication 526, Charitable Contributions; Publication 561, Determining the Value of Donated Property; Publication 1771, Charitable Contributions: Substantiation and Disclosure.