Stricter Rules on Deductions for Charitable Donations

As part of the Pension Protection Act of 2006, the rules on record-keeping required to claim a tax deduction for charitable donations became a little more strict beginning in January 2007.

Donations of Money

In order to deduct a charitable donation of money on your return for 2007, regardless of the amount, you will need to have a bank record or a written communication from the charity that shows the name of the charity and the date or amount of the contribution. Donations of money include donations made in cash or by check, electronic funds transfer, credit card, and payroll deduction.

Acceptable bank records include canceled checks, or statements from the bank, financial institution, or credit card company. Statements must contain the name of the charity, the date and the amount of the contribution. For payroll deductions you should keep the pay stub, W-2 form, or other document furnished by your employer that shows the total amount withheld for charity, and the pledge card showing the name of the charity.

Prior law allowed taxpayers to back up their donations of money with personal bank registers, diaries or notes made around the time of the donation. Those types of records are no longer sufficient and must be supplemented by records from the bank or financial institution or receipts from the charity. The intent of this change, according to the IRS, is to provide greater certainty, both to taxpayers and to the IRS, in determining what may be deducted as a charitable contribution.

You should therefore keep copies of your canceled checks, bank statements, and credit card statements, and ask the charity for a written receipt whenever you make a donation. This way you will be sure to have the records you need in the event of a review of your deductions by the IRS.

The changes in the law do not affect the requirement that you get an acknowledgement from the charity for each deductible donation, in either money or property, of $250 or more. But one statement that contains all the required information may meet the requirements of both the previous and the new provisions.