Magazine article Business Credit

Charity May Begin at Home, but the IRS Wants More Proof

Magazine article Business Credit

Charity May Begin at Home, but the IRS Wants More Proof

Article excerpt

The sound and fury of the major tax law changes brought about by the Tax Reform Act of 1993 are still reverberating across the country. Unfortunately, the focus on the highly visible changes (such as tax rates) have obscured many other changes that will also have a significant impact on how you pay your taxes--and how much you will pay. One of the biggest changes that will affect nearly every taxpayer is the new documentation requirement for charitable donations.

Obtain Receipts

The IRS has long believed that many taxpayers inflate their deductions for charitable donations. A key provision in the Act is designed to force taxpayers to be honest in reporting the amount of their charitable donations. The IRS believes that increased compliance will raise billions of dollars over the next five years.

Beginning in 1994, for every donation of $250 or more, you will be required to obtain a receipt or written acknowledgment at the time the donation is made. This is required even if the donation is made by check. A canceled check is no longer considered sufficient documentation for donations of $250 or more.

There is one type of donation which will not require documentation from the charity--a donation made through payroll deduction. If you have $10 per week withheld from your paycheck and send it to the United Way, no further documentation is necessary.

There's much more to this new regulation. If you receive goods or services in exchange for your charitable donation, the receiving charity is required to disclose to you the value of the goods or services. Your donation is only deductible to the extent that it exceeds the market value of the goods or services provided. For example, suppose you purchase a hand painted vase during a charity auction which is valued at $200 with a bid of $150. You receive a letter thanking you for your $150 donation and a receipt telling you that the vase is valued at $200. …

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