What is it that you need to show you gave things to Goodwill or your school other than an statment from them to that effect? My lady said something I do not understand. Is there some special form they have to fill out or what? Thanks. Oh yea I saw you on AOL.
(asked via facebook)
This question is pretty timely because there’s a buzz going around that the receipts from Goodwill, Salvation Army, etc. are not sufficient on audit and that it’s not a good idea to make those kinds of donations for fear of being flagged. As with most of these tax-related rumors, this is only half true. Here’s the whole picture…
First, always get a receipt. Always.
Second, make sure that the receipt has the right info. For donations of goods or cash (or cash equivalent), you need to get a receipt from the charitable organization which has:
- the name of the charity;
- the date of the gift;
- the location of the charity; and
- a detailed description of the property donated.
If the organization doesn’t offer you a receipt, ask for one. If they’re taking your money or your stuff, they owe you a receipt. If they can’t be bothered, find a new organization (or decide that you’re okay with donating the stuff but not taking the deduction). But the excuse that nobody offered you a receipt won’t fly.
Third, keep good records. That means receipts. Scan or copy them and toss them in a “charitable deductions” folder (or Tupperware, as many of my clients are wont to do – that works, too!). But hold onto them. And make sure that they’re readable and accurate, for goodness sakes.
With all of that said, it is true that the IRS is cracking down on charitable deductions. That does not mean that you will run into a problem if you follow the rules.
The case that’s making the rounds these days (and causing all of those panicky emails) is this one: Roberts v Commissioner (downloads as a pdf). In this case, Mr. Roberts painted himself as a good guy who meant well. He gave to charity. And according to him, he gave a lot. He claimed nearly $30,000 in charitable contributions for just one year. And to his credit, he tried to file the right forms. As the Tax Court noted:
Included with his 2005 Federal income tax return was a self-prepared substitute Form 8283, Noncash Charitable Contributions, in which petitioner claims to have contributed more than 450 items of property consisting primarily of used clothing, but also including, among other things, towels, bedsheets, books, costume jewelry, children’s toys, and glass lamps.
But here’s where his claim fell apart. The Tax Court further noted that “Petitioner’s descriptions of the items of property allegedly contributed to charity are vague and include self- assigned estimates of their values.”
No, no, no. (Imagine me shaking my head here.)
When you make charitable contributions, you have to be somewhat specific on the receipt. “4 bags of clothes” (one of the entries on Mr. Roberts’ tax return) is not sufficient. While you don’t need to itemize each and every piece of clothing, some attempt at accurate description is important. I’ve said before that my mom is great at this: she’ll write “four pairs women’s dress slacks, hardly worn.”
If you’re donating items that have more value than a few bucks, be even more descriptive. Maybe even include the brand name, where appropriate. While I’m not a clothes horse (yes, my friends think my wardrobe is appalling… I’m totally a candidate for What Not To Wear), I occasionally have an item or two that I’ve made an effort on. If I donate those, I’ll write down “Jones New York ladies dress suit” or “Coach women’s briefcase.” You don’t need a SKU but a little bit of identifying info is a good idea.
Mr. Roberts didn’t have any substantiation for his donations. He couldn’t explain their values. And, worse, he didn’t include the dates of contribution. The donations were disallowed – and he got socked with a penalty.
Mr. Roberts also claimed deductions for cash allegedly contributed to panhandlers and the Salvation Army. If you’ve been reading the blog, you know that wouldn’t be sufficient without a receipt (picking up on a theme here?).
This case (which was in Tax Court and pursuant to Internal Revenue Code section 7463(b), may not be treated as precedent for any other case) is getting a lot of press and making some taxpayers nervous about charitable giving. The IRS is examining charitable gifts more closely but don’t use that as a reason to scale back. It is clear that you have to be thoughtful about your donations. If you are expecting a deduction in exchange for the donation, get proper documentation. Get receipts. Keep good records. But for goodness sake, keep giving.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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