Making Holiday Contributions Count — What Every Doner Needs to Have in Place Long Before April 15


Southfield, Michigan—December 19, 2005 – Most charities will collect up to 50 percent of their annual contributions during the holiday season. And while that season is far from over, experts are already predicting that 2005 will be a record breaking year for giving spurred by the outpouring of Hurricane Katrina contributions.

If you or your business plan to deduct holiday charitable contributions come tax time, you need to be aware of ever-evolving IRS rules governing how you claim and what you need to claim or you could pay a 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, donations can make a big impact during tax season,” said Rich Salter, tax partner at Plante & Moran. “If you want to deduct a contribution on your return, you should first ensure that your charity of choice is a qualified charitable organization. Then you’ll need to obtain the required substantiation to support the deduction.”

The type of contribution and its value will dictate the documentation the IRS needs from you at tax time. According to Salter, 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 generally 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, 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 need a written acknowledgement from the non-profit. The statement should include the cash amount or a description of the item, and MUST include 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.

Non-Cash Property Contributions in Excess of $5,000 – In most situations, you will need 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. Donors at this level are even more strongly encouraged to maintain all supporting records in case of an audit.

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

Car donations – Donations of motor vehicles, boats and airplanes worth more than $500 now yield a deduction that is generally no greater than the price at which the charitable organization subsequently sells the property – then still subject to the overall limitations on charitable deductions.

Computer equipment donations – As part of the Working Families Tax Relief Act of 2004, enhanced deductions for corporate contributions of certain computer equipment to educational organizations will continue to apply until 12/31/05.

Large Cash Contributions – A new provision designed for Katrina relief contributors, this category addressed contributions of cash made by individuals to public charities after August 27, 2005 and before January 1, 2006. The historic maximum deduction limit of 50 percent of adjusted gross income (AGI) for these contributions no longer applies, and individuals can elect to deduct such contributions up to 100 percent of their AGI. Corporations making cash contributions to public charities during that timeframe have an increased limit of up to 100 percent of taxable income – but corporate contributions must be specifically targeted for Hurricane Katrina relief efforts.

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.