Proper documentation of charitable contributions is essential in order to receive a tax deduction. In a recent United States Tax Court decision, a married couple’s deduction of over $22,500 in contributions to their church was disallowed because the church failed to provide a proper receipt. The problem? A year-end contribution statement from the church failed to state that no goods or services were provided in exchange for the contributions. A corrected contribution statement issued when the couple was audited did not fix the problem as the Court deemed it untimely. The result? A tax deficiency of more than $7,500.
The lesson for us? Follow the letter of the law when it comes to documenting charitable contributions. Here’s what we all need to do:
A written acknowledgment, issued when a donor receives nothing substantial in exchange for a contribution, must include:
A written disclosure, issued when a donor makes a payment of more than $75 that is partly contribution and partly purchase (e.g., a ticket for a fundraising banquet), must include:
We live in a country that is exceptionally generous, under a government that encourages our generosity by allowing us tax breaks for much of our giving. There’s no sense in losing out on those tax breaks simply because we failed to get the paperwork right!