The tax deadline is almost here...just a little over two weeks before your return or an extension on your return must be filed. Every year, clients come in nervous about whether they are going to breakeven or end up owing a large sum of money. One way to help you work towards a breakeven (or possibly earning a little bit back!) is to retrieve documentation of charitable donations. According to the IRS Publication 1771: Charitable Contributions Substantiation and Disclosure Requirements, any single charitable donation worth more than $250 requires documentation from the agency to which it was given or a bank record including the charity's name and sum of donation. For non-cash donations, a physical description is required. For multiple donations to the same agency, the donations may be recorded on one annual summary or as individual acknowledgements for each contribution. Charitable organizations typically postmark these annual summaries or individual acknowledgements no later than January 31 following the tax year (i.e., an annual summary for the 2015 tax year would be sent out no later than January 31 of 2016). If you made a donation to a charitable 501(c)3 certified organization during the 2015 tax year and did not receive an acknowledgement, you may want to contact the organization to ensure that your donation was accounted for and can be applied toward your tax return. Unreimbursed business expenses, such as out-of-pocket travel expenses, can also be considered charitable donations.
Another important thing to note is compensation for a donation for more than $250; some organizations may provide you with a good or service in exchange for a large donation, including but not limited to cash, services, property, benefits, or privileges. A donor should make a good faith estimate of the value of this compensation, and reduce his contribution by that amount. For example, if you were to donate $1,000 to any given organization, and receive a compensatory gift worth $200, your deductible donation would be $800. There are three exceptions to this rule:
1. Token Exception: a compensatory gift of "insubstantial" value. The IRS has very specific dollar amounts as to what "insubstantial" means, but a good rule of thumb is a gift that could be ordered in bulk--rubber bracelets, calendars, mugs, buttons or pins, typically bearing the company name or logo.
2. Membership Benefits Exception: benefits included in an annual membership valued at less than $75. This could include free or discounted parking, discounted gift shop or food court purchases, and free or discounted admission.
3. Intangible Religious Benefits Exception: typically admission to a religious event or de minimis tangible benefits.
Not sure if your donation falls under one of these categories? Looking for more specific information? You can view the IRS's publication PDF here, or contact a Pathways consultant today!
The Pathways Team