Tax Deductible Charitable Contributions

We are coming to the end of the year, and a great way to do some end-of-year tax planning and help your community is to make a charitable contribution.  Charitable contributions can be tax deductible, but the tax code places requirements on donors who wish to take a tax deduction. This blog will discuss what to know when making tax deductible charitable contributions.

Cash contributions to charities are generally straightforward.  A person who makes a cash (or check, credit card, Venmo, Zelle, etc.) payment to a recognized 501(c)(3) organization can generally claim a charitable deduction equal to the amount of the cash contribution.

The rules get complicated when people contribute property such as real estate, vehicles, and equipment.  The tax law has additional requirements when the property is valued over $5,000.  Any tax deductible contribution over $250 (whether it is cash or property) requires a receipt which states:

• 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 described in clause (i).
• A description and good faith estimate of the value of any goods or services referred to in clause (ii) or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.

Donations of property over $5,000 generally require a formal written appraisal prepared by an appraiser (there are few notable exceptions for certain contributions of vehicles and contributions of publicly traded stocks).  Using informal valuations such as Zillow or eBay will not satisfy the appraisal requirement.

Even if a donor gets a formal appraisal, they should still make an informal inquiry as to the value of their donated property and document their informal inquiry.  In the event a charitable contribution is denied in audit, a taxpayer can avoid accuracy penalties by showing they used an appraiser and made a good faith inquiry as to the value of the property.  A good faith inquiry can be an informal inquiry such as a value from Zillow or Redfin, advertised sales prices, or talking to someone who is in the business of selling property similar to that being donated.  The appraisal value should be in the same ballpark as the value obtained from the informal inquiry.  It is important to document the informal inquiry as well. 

Charitable contributions are a great way to do some end-of-year tax planning and help organizations that service our community.  However, one should make sure to get the proper receipts and appraisals in order to avoid future headaches down the road.  It is recommended to seek the advice of a professional tax preparer to ensure the charitable contributions ae properly documented and reported on your tax return.  Failing to attach the proper schedules to a return may lead to a denial of the charitable deduction. 

At RJS LAW, we help clients with tax problems ranging from tax planning to tax audits. Do not let your good intentions go awry due to mis-navigation of the tax-related laws and reporting rules.  Please feel free to contact us on the web at RJS LAW or by phone at 619-595-1655 to schedule a free consultation if you have any questions about charitable contributions or any other tax issue. 

Written by Joseph Cole, Esq., LL.M.