Commentary: Financial planner: Check IRS rules on charitable

Journal Record, The (Oklahoma City), Dec 18, 2007 by Heidemarie Brandes

While giving charitable donations gives big-hearted donors the warm fuzzies, it's also important to have a solid understanding of the IRS rules on donation documentation. Because while donating to a charity is a generous thing to do, if you don't understand the rules, you'll pay the price in taxes due to undervalued non-cash donations.

In the end, giving can make a big impact during tax season.

"The rules for charitable donations have changed so much in the past few years," said Denice Harris, Oklahoma City certified public accountant. "You really need to do your homework on what you can claim and what you can't. It's important to donate, but the rules have become more stringent."

Because the rules for donating and claiming those donations as a tax write-off has changed, Harris has some tips on how to the get the most from donating. The nature of the contribution dictates what you'll need in documentation in order to get that write-off.

* Used items - With used clothing, household goods, etc., when you donate, you can deduct the fair market value. New software and books are now providing estimates on the values of such items, but a poor man's way of doing that research is to go to a charity thrift store and get the prices that store is charging. Some software can even generate a receipt to be signed by a charity representative.

* A contribution of cash or property in excess of $250 - These donations usually need a written acknowledgement from the nonprofit. The statement should include the cash amount or a description of the item, and either a description and of the value or a statement that no goods or services were provided in exchange. "Some organizations, like Goodwill, even have the breakdown of prices on the back of the receipts they give you," Harris added.

* Stocks - Stocks for a privately held company require a qualified appraisal which should accompany your return. Stocks for publicly held companies, however, do not require an appraisal.

* Car donations - According to new tax legislation, taxpayers will no longer be able to write off the Blue Book value or provide the IRS with an appraisal of vehicles valued at $5,000 or more. "The donation you can claim is limited to the gross proceeds from the sale by the organization," said Harris. "In other words, what the group sold the vehicle for in the end is what you can claim."

* 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, most 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.

"For instance, if you paid a charity $100 for a concert ticket that was valued at $40, you can only claim no more than $60 as the contribution," Harris said.

For more information about the documentation of other charitable contributions, talk to a tax professional or visit www.irs.gov.