When it comes to preparing individual tax returns, many individuals wonder what kind of documentation they need to support their charitable contributions. First and foremost, to qualify for a charitable contribution deduction, a contribution must have been given to a qualified charitable organization. The Internal Revenue Service (IRS) website contains a link to search for exempt organizations (https://www.irs.gov/charities-non-profits/search-for-charities). Donations given directly to an individual in need are not considered a deductible contribution but instead are considered by the IRS to be personal gifts. Secondly, an individual can only deduct contributions if they are itemizing their individual tax return. Generally, an individual may be able to deduct up to 50 percent of their adjusted gross income, however, there are limitations. Seek advice regarding your individual deduction limitations from a tax professional.
The IRS requires that an individual have written substantiation for any contribution in order to include as an itemized deduction. This written documentation is required no matter the dollar amount or value contributed. Documentation received directly from the charitable organization usually comes in the form of a thank-you letter that contains the name of the organization, date and the amount of the contribution. In order to claim a deduction for contributions of $250 or more, written contemporaneous documentation from the qualified organization must be obtained. Contemporaneous means that the donor acknowledgment must be received before the individual files their tax return claiming the charitable contribution deduction. A written listing of contributions made is not sufficient recordkeeping. All checks, credit card charges and electronic funds transfer records should be retained as a record of the contribution. These records should show the date paid, name of the charity and the dollar amount.
If a benefit is received in return for a charitable contribution (quid pro quo), only the portion that exceeds the fair market value of the benefit received may be deducted. For example, if you donate $100 to a musical arts foundation and received one ticket valued at $25 for an upcoming concert, the charitable deduction allowable is $75. Fair market value is considered to be the value an individual would pay on the open market for similar goods or services. A qualified charitable organization is required to furnish a contribution statement to a donor for quid pro quo contributions of $75 or more. This statement is required to inform the donor of the amount that is deductible for federal income tax purposes and an estimate of the value of the food or services the donor received in exchange.