As autumn approaches, you might begin thinking about what charities you want to favor at year-end. But this year, you really need to stay on your toes.
Reason: Strict new record-keeping rules apply to cash and cash-equivalent donations made in 2007.
So long as you meet the tax-law requirements, you can write off donations made as late as Dec. 31, on your 2007 tax return.
Strategy: Make sure you properly document all monetary contributions. To avoid potential hassles, refrain from giving cash gifts. When possible, write a check or charge it instead.
If the IRS challenges the amounts, and you can’t produce the necessary records, you won’t receive a deduction for those items.
Here’s the skinny: Prior to this year, some taxpayers played fast-and-loose with the charitable gifts record-keeping rules. Under prior rules, a cash contribution could be substantiated by:
- A canceled check.
- A receipt from the charitable organization showing its name, the contribution date and the amount of the contribution.
- Other reliable written records.
But the Pension Protection Act of 2006 imposes new donation requirements for the tax years beginning after Aug. 17, 2006. The IRS will not allow a deduction for a contribution made by cash, check or any other monetary gift unless you maintain a bank record of the contribution, such as a bank statement, canceled check, credit card statement or
Note: The IRS does not allow a de minimis exception. The new rules apply to all monetary contributions, no matter what the amount. For cash gifts of $250 or more, you must have written communication from the charity. A bank record is not sufficient.
That tax-law change more closely aligns the cash-contribution record-keeping rules with the rules for charitable gifts of property. You can’t simply keep a cash-contribution log or other written records like you did in the past.
Keep this requirement in mind when you throw loose change or dollar bills into a collection plate or bucket. It’s a generous act, but you won’t be able to substantiate those contributions.
Tip: A credit card statement or a printout that verifies an online contribution should satisfy the new rules.