Ensure You’re Properly Documenting Your Charitable Donations

Properly documenting your charitable donations isn’t just good practice—it’s essential. Whether you’re running a nonprofit, donating as a business, or contributing as an individual, maintaining accurate records ensures you can substantiate tax-deductible donations and stay compliant with tax laws.

This guide will walk you through everything you need to know about documenting your charitable donations. From cash donations to noncash contributions, we’ll uncover the requirements, highlight the complexities, and help you avoid costly mistakes.

Why Proper Documentation Matters

Charitable donations play a significant role in supporting nonprofits and delivering value to the community. For donors, these contributions can also reduce taxable income through deductions. However, the IRS has specific rules to verify donation claims. Without proper records, you risk losing those valuable tax benefits.

According to the IRS, failure to maintain proper charitable donation records is one of the top reasons deductions are denied during audits. To protect both your contributions and your peace of mind, follow the practical steps below to stay compliant.

Making Cash Donations

Cash donations are among the simplest to document, but they still require proper records to claim deductions.

1. Bank Records

For all cash donations, the IRS mandates that you have reliable bank records as proof of your contribution. These can include:

• Canceled checks showing the donation amount and recipient.
• Bank or credit card statements detailing the payment.

If you’re making digital transfers or utilizing third-party platforms like PayPal, make sure you save transaction confirmations to serve as valid proof.

2. Written Communication from the Nonprofit

For donations of $250 or more, a written acknowledgment letter from the receiving nonprofit is required by the IRS to claim a deduction. This letter must include:

• The donor's name.
• The amount of money donated.
• The name of the receiving nonprofit organization.
• A statement confirming whether or not goods or services were provided in exchange for the donation.

Example:

"Thank you for your generous contribution of $300 to [Nonprofit Name]. No goods or services were given in return for this donation."

This acknowledgment should be received before filing your taxes to avoid any compliance issues.

Pro Tip:

Even for donations under $250, it’s smart to request a receipt from the nonprofit. It’s better to have comprehensive records than to deal with missing documentation during tax season.

Making Noncash Donations

When donating goods instead of money, the process for documenting your contributions becomes more nuanced. Noncash donations include items like clothing, furniture, vehicles, or even stocks.

1. Identify the Value of Your Donation

For noncash items, the IRS allows you to deduct the fair market value of the donation. This is the price you could reasonably sell the item for on the open market.

For example:

• A clothing donation to Goodwill might have a fair market value of $100, based on its condition.
• A donated car’s fair market value might depend on local used vehicle prices or an appraisal.

2. Keep Proper Records

To document noncash charitable donations, the IRS recommends maintaining the following:

• A detailed description of the donated items (e.g., “10 pairs of jeans, lightly worn”).
• Photographs of the items as further evidence of their condition.
• A receipt from the nonprofit organization acknowledging the donation and listing the items provided.

3. File Form 8283 for Higher-Value Items

It’s important to note that:

• Donations valued at over $500 require IRS Form 8283.
• If single items are valued above $5,000 (e.g., a donated car or piece of artwork), you’ll need a written appraisal from a qualified appraiser in addition to Form 8283.

Nonprofits cannot assign a dollar value to your donation. It’s your responsibility to assess fair market value and substantiate it during tax filing.

The Rules are Complex—Here’s How to Navigate Them

The tax rules around documenting charitable donations can feel overwhelming, especially when noncash contributions and IRS forms come into play. Here’s how to approach them with confidence:

1. Work with Experienced Advisors

A trusted tax advisor or accountant can guide you through compliance for both individual and business contributions. They’ll ensure your deduction claims align with IRS requirements, protecting you from potential penalties.

2. Double-Check Nonprofit Status

Confirm that the organization you’re donating to is a qualified 501(c)(3) nonprofit. Donations made to non-eligible organizations aren’t tax-deductible. You can search for eligible nonprofits on the IRS Exempt Organizations website.

3. Digitize Your Records

Utilize cloud storage platforms to save important documents like donation receipts, acknowledgment letters, and photos of donated items. Having accessible digital back-ups can save you hassle in the event of an audit.

4. Keep Deadlines in Mind

Claim donations for the year in which they were made. Ensure that you receive acknowledgment letters and receipts in time for filing your annual tax return.

Take Control of Your Charitable Donations

Properly documenting your charitable donations doesn’t just safeguard your deductions—it reflects responsible giving that benefits both you and the organizations you support. By following these guidelines, you’ll be equipped to maximize the impact of your contributions while staying compliant with IRS standards.

If you’re feeling uncertain about how to track or file your charitable donations, our team at SD Mayer & Associates can help. With decades of experience assisting nonprofits, small businesses, and donors, we specialize in navigating tax challenges with clarity and professionalism.

Contact us today for personalized guidance on donation compliance and tax strategies tailored to your goals. Together, we’ll ensure that every dollar you give is accounted for.