Gifting and the Tax Deduction

The tax rules are clear: In order for charitable gifts of $250 and above to qualify for a deduction, there must be a letter detailing the amount of the donation and affirming that no goods or services were provided in connection with this gift…

Giving to charity can be a very noble thing. Americans rank first in the world when it comes to giving to a worthy cause, seemingly it comes quite naturally to us. Unfortunately, if you hope to deduct your charitable contribution on your next tax return, it can be equally easy to gift incorrectly. To prevent a simple but all too common mistake, the Wall Street Journal offers a mantra: “Get the letter. Get the letter. Get the letter.”

If you are making a donation of more than $250, the charity must properly acknowledge your donation before the IRS will, and that means a letter. Indeed, the IRS is surprisingly literal about this and refuses to bend or accept other means of proof, even when people go out of their way to offer alternatives. You must have a letter written by the charity that clearly delineates the amount of the donation. Further, the letter also must affirm that no goods or services were rendered or, if there was an exchange, the letter must itemize and deduct the cost of those goods and services from the overall donation.

When it comes to any tax deduction, charitable or otherwise, remember the IRS likes to have hard answers and cold facts. Laura Peebles, a director at Deloitte Tax in Washington summed it up for the WSJ, “If you don't have the correct paperwork, there's no way to fix the problem.”

Reference: The Wall Street Journal Online (June 11, 2011) “One Easy Way To Lose That Charitable Deduction

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Update to our Process

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