barbara-ashorn-doeren-mayhew-cpas

By Barbara Ashorn, CPA, Tax Shareholder

If you plan on claiming a charitable contribution on your 2021 tax return, be prepared to also have substantiated documents related to your donation ready should it trigger an Internal Revenue Service (IRS) audit. With the Consolidated Appropriations Act, 2021 extending the temporarily suspended limits on charitable contributions through 2021, the IRS has increased its efforts to crack down on taxpayers abusing this tax benefit and is heavily watching outsized contributions being recorded on tax returns this filing season.  

Substantiation Requirements

Taxpayers taking advantage of the charitable contribution deduction on their 2021 tax return should be aware of the following substantiation requirements outlined by the IRS:  

  • Contemporaneous written acknowledgment for donations of $250 or more. Taxpayers (the donor) are required to obtain and keep a contemporaneous written acknowledgment from the qualifying charity that states the amount of the donation, whether they received any goods or services in consideration of the donation and the value of such goods or services. To be contemporaneous, the written acknowledgment must generally be obtained by the donor no later than the date the donor files the return for the year the contribution is made. 
    • Taxpayers who made a 2021 donation but haven’t received written acknowledgment from the receiving charity are strongly encouraged to contact them to receive this documentation prior to filing their 2021 return.  
  • Substantiated evidence for cash donations under $250. If a cash gift was made with a check or credit card, generally a canceled check, or bank or credit card statement will suffice. If a donor received any form of goods or services for their donation, they must reduce their deduction by its value. For example, if a donor gives a charity $100 and receives a concert ticket valued at $40, the donor has made a quid pro quo contribution. In this example, the charitable contribution portion of the payment is $60. Even though part of the payment available for the deduction does not exceed $75, charities are still required to provide a written disclosure statement to the donor should the taxpayer want to bunch multiple donations to meet the deduction threshold.  
  • Substantiation requirements for donated property. Taxpayers who have donated property valued at more than $500 must complete Form 8283 (Noncash Charitable Contributions) and attach it to their return. Otherwise, the deduction will not be allowed. For property donations valued at more than $5,000, the donor is required to obtain a qualified appraisal and attach the appraisal summary to their tax return.  

2021 Deduction Limits

Under the 2021 charitable giving rules, taxpayers may elect to deduct any cash contribution made to a qualified organization in 2021 – up to 100% of their adjusted gross income (AGI). The 100% limit does not apply to donations made to a supporting organization or a donor–advised fund. This means a taxpayer could donate their entire salary in 2021 to a qualified organization and owe no taxes on that income. Plus, charitable organizations can benefit from larger donations at a time when they need them. 

The following provisions may impact your 2021 charitable contribution deduction: 

  • Taxpayers filing single/separately: If you opt for the standard deduction and choose not to itemize your deductions, you can still claim a deduction of up to $300 for qualified contributions. 
  • Taxpayers married filing jointly: If you opt for the standard deduction and choose not to itemize your deductions, you can still claim a deduction of up to $600 for qualified contributions. 
  • C corporations can give up to 25% of their taxable income for a deduction. 
  • The limitation on food inventory contributions is 25% of taxable income. 

Taxpayers may experience deduction limitations based on the type of organization they support. For example, contributions are limited to 30% of their AGI when made to certain private foundations, fraternal societies, veterans’ organizations, or cemetery organizations. You can check the deductibility status of various organizations here. 

Our tax advisors work closely with individuals and businesses to ensure they take advantage of tax credits and deductions available to them while also minimizing their potential tax liability. To obtain assistance with gathering your documents and filing your 2021 returns, contact Doeren Mayhew’s dedicated Tax Group today.