IRS Publication 4335: Rules for Charitable Contributions
Navigate the tax implications of charitable giving. This guide clarifies the IRS rules for substantiating donations and meeting deduction requirements.
The Internal Revenue Service provides official guidance for taxpayers and nonprofit organizations in its publications. IRS Publication 526, “Charitable Contributions,” and Publication 1771, “Charitable Contributions: Substantiation and Disclosure Requirements,” outline the rules for making and receiving tax-deductible contributions. These publications serve as comprehensive resources for individuals who make donations and wish to claim a deduction, as well as for the charitable organizations that must acknowledge these gifts.
Essential Rules for Donors
The first step for any donor is to verify that the recipient organization is eligible to receive tax-deductible contributions. The IRS maintains a publicly available database, the Tax Exempt Organization Search tool, which allows individuals to confirm an entity’s status. Only donations to qualified organizations, such as those designated as 501(c)(3) entities, are eligible for a deduction.
For any single cash contribution under $250, a donor must maintain a reliable written record. This can be a bank record, a canceled check, or a credit card statement that shows the charity’s name, the date, and the amount of the contribution. Alternatively, a written communication from the organization with the same information is sufficient.
When donating noncash property valued under $250, the recordkeeping requirements are slightly different. A donor must obtain a receipt from the charity that includes the organization’s name, the date and location of the contribution, and a reasonably detailed description of the property. Unlike cash donations, a simple bank record will not suffice for property.
Required Disclosures for Charities
Charitable organizations have their own set of responsibilities, particularly when receiving larger donations. For any single contribution of $250 or more, the charity must provide the donor with a “contemporaneous written acknowledgment.” This document is a formal receipt that the donor must have in their possession before they file their tax return for the year of the donation.
The written acknowledgment must contain specific pieces of information. It needs to state the name of the charity and the amount of any cash contributed. If property was donated, the document must provide a description of the item, but it does not need to include a value, which is the donor’s responsibility to determine. The acknowledgment must also include a statement confirming whether the organization provided any goods or services in exchange for the contribution.
When a donor receives a benefit in return for a contribution greater than $75, known as a “quid pro quo” contribution, the charity is required to issue a specific disclosure statement to the donor. This statement must inform the donor that the deductible amount of the contribution is limited to the excess of the contribution over the value of the goods and services provided by the charity. It must also provide a good-faith estimate of the value of those goods or services.
Valuing and Documenting Noncash Contributions
Donated property is valued at its Fair Market Value (FMV). FMV is defined as the price that property would sell for on the open market. The IRS provides detailed guidance on how to determine FMV in Publication 561, “Determining the Value of Donated Property,” which serves as a companion to the rules for documentation.
When a donor’s total deduction for all noncash contributions exceeds $500 but is not more than $5,000, they must complete and attach Section A of IRS Form 8283, “Noncash Charitable Contributions,” to their tax return. Information required includes a description of the property, the date it was acquired by the donor, how it was acquired (for example, by purchase, gift, or inheritance), and the donor’s cost basis in the property.
If the claimed deduction for a single item or a group of similar items is more than $5,000, the donor must obtain a “qualified appraisal” of the property from a qualified appraiser. The donor is also required to complete Section B of Form 8283, which includes a summary of the appraisal and a declaration signed by the appraiser.
Annual Deduction Limits
The amount a taxpayer can deduct for charitable contributions in a single year is not unlimited. These deductions are subject to limits based on a percentage of the donor’s Adjusted Gross Income (AGI). The specific percentage depends on the type of property donated and the type of charitable organization receiving the gift.
The most common limit applies to cash contributions made to public charities, for which a donor can deduct up to 60% of their AGI. For donations of noncash property, such as stocks or real estate held for more than one year, the limit is 30% of the donor’s AGI.
Should a donor’s contributions for a year exceed their AGI limits, the excess amount is not necessarily lost. The tax code allows for a five-year carryover period for most contributions. This means a donor can carry forward the unused deduction and apply it against their income over the next five tax years, subject to the AGI limits in each of those years.