How To Document Donations for Tax Purposes: A Complete Guide

Donating to charity offers numerous benefits, including the potential to enjoy tax savings. If you want to take full advantage of potential tax benefits, it helps to learn about documenting donations for tax purposes. Charitable donations can help you lower your taxable income or capital gain tax, though your donation should meet certain requirements, and you must have all of your documentation in place.

At Easy Donation Pickup, we support the National Veterans Foundation by providing free, scheduled donation pickups in and around Los Angeles and Orange County. Below, we discuss everything you need to know about documenting donations for tax purposes.

Verify the Charity’s Eligibility

Unfortunately, you cannot claim tax deductions on any donation. You can only claim deductions on donations to an IRS-qualified organization. The Internal Revenue Service imposes this rule to ensure you only donate your items to legitimate, qualified sources.

To be eligible, the organization must be tax-exempt according to Internal Revenue Code 501(c)(3). In some cases, you may also be able to claim deductions on donations to non-tax-exempt, non-profit organizations that do not have 501(c)(3) statuses, though you may face a few more challenges. We recommend viewing the IRS Exempt Organizations Select Check tool for a confirmed view of charity eligibility.

Examples of eligible organizations include the following:

• Goodwill
• The Red Cross
• Museums
• Volunteer firefighter organizations
• Public park organizations
• The National Veterans Foundation
• Non-profit educational agencies

The final stipulation you must adhere to is ensuring you receive nothing in return for your donation. Assuming you donate to an eligible organization and receive nothing back for your gift, you may be eligible to deduct the donation, depending on the value of what you donated.

Determine the Value of Donated Property

To claim a tax deduction on your donation, you must place a monetary value on the items you donate. Cash donations will be worth the money you donated in cash, though non-cash donations and property donations require valuations.

The value of your donation will be the fair market value of the property you donated at the time you donated it. Defining the fair market value of various goods isn’t always easy.

The IRS defines Fair Market Value as the price a willing buyer would pay for an item at the time of donation, according to Publication 561. The IRS provides no fixed formula for determining the fair market value of used items. For instance, something like an old mattress may depreciate much more quickly than vintage artwork, which could gain value over time. Because of this, the IRS recommends determining fair market value based on the item’s original value, age, and condition versus how similar items of its age are selling on the market.

Understanding how to value charitable items is vital to learning to document donations for tax purposes. In general, donors can use these guidelines:

• Used clothing: Donors can use the price that buyers pay at thrift stores and consignment shops to indicate how much their clothing donation should be valued.
• Household items: Household items, such as appliances, furniture, and linens, are usually much lower in value than their original prices. Because of this, donors must provide evidence of original purchase receipts, photographs, and other items to support the claimed value.

You may also be able to ask the qualified charity you’re donating to for guidance on how much you can deduct, the types of contributions you can deduct, and more. For large tax deductions, you may want to seek a professional appraisal.

How Much Can You Claim on Your Taxes?

The amount you can claim on your taxes depends on the type and size of donation you make. In general, you may deduct up to 60% of your adjusted gross income through charitable donations, though some contributions and organizations could limit you to lower percentages like 20% to 50%. The same limit applies to all donations you make throughout the year, not just per organization.

If you donate a small amount, you may take a standard deduction, though an itemized deduction will allow you to deduct the maximum amount from the charitable donations you make.

You can claim cash and non-cash donations as tax deductions, though each has different rules. Keep reading to understand the documentation requirements and restrictions for each type of donation.

Cash Donation

The IRS requires you to provide specific documentation on cash donations, though the requirements depend on how much you donate:

• Cash donations under $250: You must provide a bank record or a written receipt from the organization showing the eligible organization’s name, date, and contribution amount. Bank records could include bank statements, canceled checks, credit card statements, etc. If you donate goods with your cash, you must also provide a written statement of acknowledgment.
• Cash donations over $250: You must provide a contemporaneous written acknowledgment from the organization or specific payroll records. The paperwork should meet deadline requirements and prove you received nothing in return for your donation.

Non-Cash Donation

Non-cash donation deduction requirements also depend on the value of your donated items. The IRS defines thresholds at $250, $500, and $5,000. You must provide varying documentation for your donations, depending on the total fair market value of your donated items.

For non-cash donations valued under $250, you must provide a receipt from the verified organization. The receipt should include the organization’s name and address, the date you donated, a detailed description of all donated items, and additional details for security items (when relevant). If you cannot procure such proof from the organization, you may write your own receipt by including the condition of the item and your estimated fair market value, plus your reasoning behind the valuation.

Non-cash donations valued at over $250 but under $500 require a contemporaneous written acknowledgment. The contemporaneous written acknowledgment from the organization should include a detailed description of the items, information on whether or not you received anything in return, and a good faith estimate of the goods or services donated.

If you’re wondering how to document donations for tax purposes on non-cash items between $500 and $5,000, the requirements are nearly similar to the above, though you also must file IRS Form 8283. IRS Form 8283 requires the following information:

• Your name and social security number or taxpayer identification number
• The organization’s name and address
• A detailed description of the donated item(s)
• The fair market value of the donated item(s) plus the reasoning behind this valuation
• Condition of the donated item(s)
• Information on whether the tangible property has been certified for its associated function (if relevant)
• Information on the security, including type of security, issuer, public trading information, etc.(if relevant)
• Date you acquired, produced, or manufactured the donated non-cash item(s)
• The cost basis and adjustments to the basis on item(s) held for less than or more than 12 months (when available)

Non-cash donations of over $5,000 will require all of the above, plus an expert appraisal. If the item is worth over $500,000, you must add the appraisal to Form 8283.

Property Donation

Property donations fall under the non-cash donation category, meaning you will follow the rules outlined above. In many cases, property assets, like vehicles or real estate, are worth over $5,000. When donating property over $5,000, you must exercise ample care to meet all IRS documentation requirements.

Keep Receipts or Acknowledgments

Maintaining your documentation, receipts, and acknowledgments as you make donations will make the deduction process much easier when you’re ready to file. You not only need to keep receipts from the organization, but you also need to maintain all documents regarding the property you’re donating. While the documentation requirements will vary based on the fair market value and type of assets you donate, you should try to maintain the following items:

• The name and location of the organization you donate to
• The date and location of your donation
• A detailed description of your donated item(s)
• The fair market value of the item(s) you donate and the reasoning behind your valuation
• The original cost or basis of the item(s) (appraisal, sales comp, thrift shop value, etc.)
• Any written acknowledgments received by the organization

IRS Guidelines

The Internal Revenue Service provides clear guidelines on how you can complete your tax deductions based on any charitable contributions you make. We offered a full guide above on IRS requirements; if you need additional IRS resources, continue reading.

IRS-Required Transaction Details

According to Publication 526, the IRS requires taxpayers to provide proof of any charitable contributions of over $250 in cash or $500 in non-cash items. Property valued above $5,000 requires an expert appraisal as well. You can find more specific requirements below.

Charitable Contributions

Charitable contributions under $250 require a bank statement or written receipt from the organization. Cash donations above $250 require a contemporaneous written acknowledgment from the organization.

Non-Cash Charitable Contributions

Non-cash charitable contributions require the following:

• Contributions under $250: A receipt from the organization
• Contributions between $250 and $500: A contemporaneous written acknowledgment from the organization
• Contributions between $500 and $5,000: A contemporaneous written acknowledgment from the organization and IRS Form 8283
• Contributions above $5,000: The above and an expert appraisal

Ready To Donate? Schedule a Pickup Today

Now that you know how to document donations for tax purposes, schedule a donation pickup with Easy Donation Pickup today to donate your items to the National Veterans Foundation, or call us at (855) 628-8387 with any questions.