Five Steps for Documenting Tax Deductible Charitable Donations

I have several friends who as part of their holiday celebration ask their children to go through their old toys and clothes and donate them to charity. I think this is a great way to teach our kids to think of others early in life.

However, many of those families often fail to realize that their donation of money or used items might be tax deductible. It does not dilute the message of donating to charity; in fact, the tax deduction option is there to encourage more people to donate as a way of thanking them for making a donation.

In order for a charitable contribution to be tax deductible, you have to do a little homework first.

1. You must donate to a qualifying charity. Most organizations will gladly tell you if your donation will be tax deductible. You can also do an online search of the IRS Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986, which is a list of organizations eligible to receive tax-deductible charitable contributions.

2. You must get a receipt confirming a monetary donation. If you put a cash donation into a qualifying charity’s collection bucket, it will not be tax deductible. However, if you write a qualifying charity a check or the charity uses an envelope system where you get a receipt at the end of the year, as many houses of worship do, then your monetary donation is tax deductible.

3. You must get a receipt or have proof of the value of donated goods. This one is a little harder to take a deduction on but can be significant if you donate a large amount of items before a move, or after a yard sale to a qualifying charity.  It’s also the one that the IRS is demanding more documentation on.

• Make an itemized list of the items that you are donating and their condition. To make the documentation job easier, I make my list as I’m going through and bagging items for donation. Your list should be itemized. For example you shouldn’t list “3 bags of children’s clothes” it should be listed as “3 pairs of girls jeans – good condition, 2 girl’s party dresses – excellent condition”etc.

• You must get a receipt confirming your donation of goods from the qualifying charity. I do not make my donation at the charity’s unattended drop box because I cannot get a receipt.

• If the itemized list of items is to long to list on the actual receipt, attach the itemized list and any photos of items you donated to the charity’s receipt. I file this with my other papers for tax time. Easy!

4. You must list the value of the goods you donated at their fair market value on your tax form. For most used household and clothing donation, fair market value is generally yard sale prices. Some charities have a chart on the back of their receipts suggesting the fair market value price of various donated items. You can also use the free version of TurboTax Its Deductible Online to find the monetary values of used goods based on the IRS’s guidelines, which can change from year to year.

5. Donations of large items may need a third party to verify the value before you donate. If you plan to donate a large or expensive item like a used car to a qualifying charity, check with your tax professional or IRS.gov to make sure you know what you need in the form of proper documentation for your taxes before you dontate.

Keep in mind that while your favorite charity is worthwhile and helps people in need, your donations to them may not be tax deductible. For example, my family’s donation to our local food pantry and to my local firefighters Christmas toy drive are not tax deductible but we made it because there is a great need in my community. I can’t stand the thought of a kid having an empty tummy and nothing under the tree during Christmas.

If you have any questions regarding what qualifies as a charity, charitable donation, or documentation please check with your tax professional or with IRS.gov because the tax laws and documentation requirements change from one year to the next.