Have you been receiving letters from your favorite charities lately? For many Americans letters have been appearing in their mailbox in recent weeks acknowledging their 2018 year-end donations. However, what happens if you have not received such a letter? Will you still be able to claim an itemized deduction for the gift on your 2018 income tax return? It depends.
To support a charitable deduction, you must fulfill the IRS substantiation requirements. The requirements usually include obtaining a contemporaneous written acknowledgment from the charity stating the amount of the donation, if you received any products or services in consideration for the donation, and the value of any such products or services.
“Contemporaneous” means the earlier of either the extended due date of your return or the date you file your tax return. So, it’s not too late to receive substantiation from the charity you made donations to so long as you have not filed your 2018 return. Contact the charity to request a written acknowledgment.
Consider that, if you made a cash gift of under $250 with a check or credit card, usually a credit card statement, bank statement or a canceled check is sufficient. However, if you received something in return for the donation, you typically need to reduce your deduction by its value, and the charity is required to give you a written acknowledgment as described earlier.
Substantiation is serious business
Do not take the substantiation requirements lightly. In one U.S. Tax Court case, the taxpayers substantiated a donation deduction with canceled checks and a written acknowledgment. The IRS denied the deduction, but it was because the acknowledgment failed to state if the taxpayers received goods or services in consideration for their donation.
The taxpayers obtained a second acknowledgment including the required statement. However, the Tax Court did not accept it because it was not contemporaneous—that is, it was obtained after the tax return was filed.
2018 and 2019 deductions
Additional substantiation requirements are needed for some types of donations. We can help you find out if you have sufficient substantiation for the donations you hope to deduct on your 2018 income tax return and we can help guide you on the substantiation you will need for gifts you are planning this year to make sure you can enjoy the desired deductions on your 2019 return.
Ben R Shull CPA LLC provides clients with tax, transaction, and advisory services. The insights and quality services we deliver help lead our clients through the next generation of changes, and accelerate growth while reducing risk. CPA Katy, TX.