How to protect the value of your charitable giving
FEDERAL tax laws contain many rules affecting charitable gifts. How is a taxpayer in Hawaii affected by these rules? What should you do today to keep that charitable deduction when you prepare your tax return?
Outright gifts of cash are the easiest -- and probably the most common -- gifts to charity. For cash gifts of $250 or less, taxpayers are required to keep canceled checks, bank or credit card statements, or other forms of substantiation for every dollar contributed.
The statements must show the amount, date posted or the transaction date, and to whom paid. A receipt or written acknowledgement from the charity showing the name of the charity, the date of the contribution and the amount contributed also may be used as substantiation.
Rules put in place several years ago continue to require written acknowledgement from the charity if the cash contribution exceeds $250. This written acknowledgement must include the identity of the charity, the amount contributed, an indication of whether any goods or services were received by the donor and, if so, a description and estimate of value. This written acknowledgement must be obtained before filing your tax return.
For contributions made through payroll deductions, pay stubs showing the amount withheld and the pledge card can be used.
But what about giving clothes, household goods, and other items to charity?
Non-cash contributions have more complicated documentation requirements. The following rules address contributions of property worth up to $5,000. Contributions worth more than $5,000 require additional documentation and the potential for an appraisal, and you should consult with your tax advisor.
For non-cash contributions worth less than $250, the donor is required to have a receipt, letter or written communication from the charity identifying the charity, the date and the location of the contribution, and a reasonably accurate description of the items contributed.
A reliable record of each item donated, including an estimated fair market vale of each item, must also be maintained.
For non-cash contribution worth $250 to $500, the donor must have a written acknowledgement that satisfies the less than $250 requirements plus an indication of whether any goods or services were received by the donor and, if so, a description and estimate of value. This written acknowledgement must be obtained before filing the donor's tax return.
For non-cash contribution worth $500 to $5,000, the above requirements must be met, and the donor must maintain records showing how and when the donated property was originally acquired, its cost and any adjustments to the cost.
If the donated property was an automobile valued at $500 or more, the written acknowledgement from the charity must include the vehicle identification number and a certification of the organization's use or sale of the vehicle. I
If the vehicle was sold, the sale price must be disclosed, as that is the amount of the donor's deduction.
For anyone making donations of clothing and household items after Aug. 17, 2006, you can only take a deduction for items that are in good condition. These donations include furniture, furnishings, electronics, appliances, linens and similar items.
However, food, paintings, antiques, objects of art, jewelry, gems and collectibles are not considered household items.
Items deemed to have minimal value, such as used socks or undergarments, are not deductible.
While the tax rules are in place to keep taxpayers on the "straight and narrow", most charities hope these documentation rules do not scare away donors. We all must remember that the tax deduction is one of the benefits; doing good is the other.
Ken Kretzer is a senior tax manager for the Honolulu office of Grant Thornton LLP. He can be reached at Kenneth.Kretzer@gt.com