Tuesday, March 31, 2009

Keeping Records of our Charitable Deductions

I have had friends tell me that they are careful not to deduct too much for charitable contributions, for fear of being audited by the IRS. So they routinely claim less than the value of the goods donated. My approach is to take the full value of our deductions for charitable contributions, by ensuring I have the written documentation required by the IRS.

For every charitable contribution I make, I get a receipt with the organization's name and address, on which I can write the date, cash amount or specific goods contributed. If I am making a cash donation and can't get a receipt, I will write a check, and use the cancelled check as documentation. For goods, I usually create a list of the donated items at home, which can be attached to the receipt from the charitable organization.

To value contributed goods, I use thrift store prices, which I obtain from a sheet provided by my local Goodwill collection center. On the sheet, clothing typically has a value of about $5 per piece, with coats and suits being more, and socks being less. For contributions of securities, I used the average price on the day the contribution was made. For last year, I didn't make any contributions of old cars or appreciated art, which have special valuation requirements.

Finally, to claim over $250 in a single contribution, cash or goods, the taxpayer must have contemporaneous written acknowledgement of receiving the donation. For me, the Goodwill receipt and our church annual summary statement meet this requirement.

I keep all the documentation for at least three years after the filing date. If the IRS should ever audit my return for charitable deductions, I can easily produce required documentation to support the tax benefits.

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This is not financial or advice. Please consult a professional advisor.

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