In recent years, people around the world have been affected by disasters, such as Hurricane Katrina, Cyclone Nargis and the 7.9 magnitude earthquake felt throughout much of China. Thousands of people were suddenly without the basic necessities: clothing, food and shelter. After those unfortunate events, the survival of those affected was largely dependent upon the generosity of others. Charitable contributions are a great way to simultaneously help those in need and give yourself a tax break.
Smart Business spoke with Brent Saunier, tax manager at Habif, Arogeti & Wynne, LLP, about the tax implications of charitable contributions.
Can a taxpayer take a tax deduction for a contribution made to any individual or organization?
Contributions must be made to qualified organizations to be tax deductible. The IRS prohibits deductions for contributions made to specific individuals, certain private foundations, foreign governments, political organizations and candidates. I would recommend researching the organization to verify it is recognized as a charity. Internal Revenue Service Publication 78 can help you find a list of organizations that do qualify for a charitable tax deduction. Most charitable organizations that qualify you for a deduction will have 501(c)(3) tax exempt status as provided by the Internal Revenue Code. The Web site address for the publication is www.irs.gov/app/pub-78/.
When can a charitable deduction be taken?
A donation to a qualified charity is deductible in the same year in which it is made. The contribution will be considered paid when you put the check in the mail or when it is charged to your credit card.
What type of documentation is required to substantiate a deduction in the unlikely event of an IRS audit?
Regardless of the amount of your monetary deduction, you must maintain a bank record or written communication from the organization containing the name of the organization, the date of the contribution and the amount of the contribution. A canceled check is no longer sufficient to substantiate a deduction.
In order to claim a deduction for contributions of cash or property totaling $250 or more, you must obtain a written acknowledgement from the qualified organization that shows the amount of the cash and/or a description of any property contributed. The acknowledgement must also indicate whether the organization provided goods or services in exchange for your gift.