MAKING CONTRIBUTIONS COUNT - What Every Donor Needs to Have in Place Long Before April 15


CHICAGO---November 15, 2004--- If you or your business plan to deduct holiday charitable contributions, you need to have a solid understanding of the IRS’s many rules governing donation documentation or you’ll pay the price – literally. According to the IRS, more than 20 million Americans deduct charitable donations, but many significantly overpay their taxes because they typically undervalue their non-cash donations.

“Although we know that people give to charity for more than just a deduction, giving can make a big impact during tax season,” said John Mach, tax director at Plante & Moran. “If you want to deduct a contribution on your return, you should first ensure that the charity you plan to give to is a qualified charitable organization. Then you’ll need to obtain the required substantiation to support the deduction.”

The nature and value of the contribution will dictate the necessary support requirement. According to Mach, the following are some categories to consider for common types of non-cash contributions:

Used Items – If you donate old clothes, books, housewares or other items to a charity or its resale shop, you can deduct the fair market value. It’s easier than ever to find fair market values thanks to books and software that provide estimates on the values of thousands of the most commonly donated items. Some software can even generate a receipt to be signed by a charity representative.

“Quid Pro Quo” Contributions – A “quid pro quo” contribution means you’ve made a donation and received something in return, such as tickets for a charitable dinner. For quid pro quos in excess of $75, most charities must provide a written statement indicating that the contribution is deductible only to the extent it exceeds the value of the goods and services provided. The statement also must include a “good faith” estimate of the value of the goods or services.

A Single Contribution of Cash or Property in Excess of $250 – These donations usually need a written acknowledgement from the non-profit. The statement should include the cash amount or a description of the item, and either: (1) a description and good faith estimate of the value of the goods and services provided in exchange for the contribution or (2) a statement that no goods or services were provided in exchange.

Making Contributions Count – Add One

Non-Cash Property Contributions in Excess of $5,000 – In most situations, you will have to obtain a qualified appraisal of the item(s) so you can attach an appraisal summary to your tax return. Businesses making an inventory donation of $5,000 or more are not required to receive an appraisal, but it’s strongly recommended. Donors at this level are also encouraged to maintain all supporting records in case of an audit.

Stocks – Stocks for a privately held company require a qualified appraisal, a summary of which should accompany your return. Stocks for publicly held companies, however, do not require an appraisal.

Donor Managed Investment Accounts (DMI) – Introduced in fall 2004, this newest donation category is aimed at wealthy donors, who plan to contribute more than $250,000. A DMI account enables donors to manage their assets for as long as 10 years after making a gift. In the year a donation is made, the donor can get as much as 50 percent of adjusted gross income. During the time a gift is managed, the gift grows tax-free.

Car donations – According to new tax legislation, the American Jobs Creation Act of 2004, taxpayers will no longer be able to write off the Blue Book value or provide the IRS with an appraisal of vehicles valued at $5,000 or more.

Computer equipment donations - As part of the Working Families Tax Relief Act of 2004, corporate contributions of computer equipment to educational organizations will continue to apply until 2006. “Tax season is stressful enough for most individuals and businesses,” Mach said. “You don’t want a donation made out of generosity to add to that stress.”

For more information about the documentation of other charitable contributions, talk to your tax professional or visit www.irs.gov. Donors can also refer to IRS Publication 526 for further details on all aspects of deducting charitable contributions.

For additional information, please contact: Teresa McAlpine Plante & Moran Communications 248-603-5344 Teresa.McAlpine@plantemoran.com