Did you donate to charity last year? Acknowledgment letters from the charities you gave to may have already shown up in your mailbox. But if you don’t receive such a letter, can you still claim a deduction for the gift on your 2023 income tax return? It depends.
What the law requires
To prove a charitable donation for which you claim a tax deduction, you must comply with IRS substantiation requirements. For a donation of $250 or more, this includes obtaining a contemporaneous written acknowledgment from the charitable organization stating the amount of the donation, whether you received any goods or services in consideration for the donation and the value of any such goods or services.
“Contemporaneous” means the earlier of:
- The date you file your tax return, or
- The extended due date of your return.
Therefore, if you made a donation in 2023 but haven’t yet received substantiation from the charity, it’s not too late — as long as you haven’t filed your 2023 return. Contact the charity now and request a written acknowledgment.
Keep in mind that, if you made a cash gift of under $250 with a check or credit card, generally a canceled check, bank statement or credit card statement is adequate. However, if you received something in return for the donation, you generally must reduce your deduction by its value — and the charity is required to provide you a written acknowledgment as described earlier.
No longer a tax break for nonitemizers
Currently, taxpayers who don’t itemize their deductions (and instead claim the standard deduction) can’t claim a charitable deduction. Under previous COVID-19 relief laws, an individual who didn’t itemize deductions could claim a limited federal income tax write-off for cash contributions to IRS-approved charities for the 2020 and 2021 tax years. Unfortunately, the deduction for nonitemizers isn’t available for 2022 or 2023.
More requirements for certain donations
Some types of donations require additional substantiation. For example, if you donate property valued at more than $500, you must attach a completed Form 8283 (Noncash Charitable Contributions) to your return.
And for donated property with a value of more than $5,000, you generally must obtain a qualified appraisal and attach an appraisal summary to your tax return.
Contact us if you have questions about whether you have the required substantiation for the donations you hope to deduct on your 2023 tax return. We can also advise on the substantiation you’ll need for gifts you’re planning this year to ensure you can enjoy the desired deductions on your 2024 return.
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When making charitable donations, taxpayers must remain aware of various factors to determine if their donation will be tax deductible. Taxpayers will typically claim the standard deduction in lieu of itemizing if the standard deduction exceeds all applicable itemized deductions. The standard deduction will be $29,200 in 2024 for a married couple filing jointly. State and local taxes (up to the $10,000 limitation), mortgage interest paid, and charitable donations represent the three most common itemized deductions available. If claiming the standard deduction, no charitable donations will be tax deductible.
Through proactive tax planning, a taxpayer can push multiple years of charitable donations into one year. “Bunching” involves making two years of donations in one year to push total itemized deductions over the standard deduction threshold described above. The taxpayer would then claim the standard deduction in the second year, which results in more deduction between the two years than permitted under the standard deduction alone.
Establishing a donor advised fund can provide an enhanced “bunching” benefit. For tax purposes, charitable donations occur when the donor donates cash or property to the donor advised fund. Under this approach, several years of donations can be recorded in one year to maximize the itemized deduction. The funds can be invested and paid out to charities as the donor desires
In lieu of cash, appreciated stocks, real estate, or business property held longer than one year can be donated. This permits an enhanced tax benefit as the donor receives a charitable deduction for the current fair market value of the assets and avoids any capital gains taxes. In most cases, total donations are limited to 30% of adjusted gross income for non-cash donations and 60% of adjusted gross income for cash donations.
Furthermore, taxpayers must obtain proper documentation to deduct charitable donations. An acknowledgement letter from each charity must be obtained for any contribution of $250 or over prior to filing the tax return. Except for publicly traded securities, a qualified appraisal must be obtained for any property donated with a fair market value of $5,000 or more.
When using a donor advised fund, the fund provider issues acknowledgment at the time of initial donation. This provides an advantage when donating to several different charities as obtaining acknowledgment letters from each charity is not necessary.
To ensure you are taking full advantage of all the tax benefits available for charitable donations, please reach out to our tax professionals at 415 Group.