What a difference a year makes.
A year ago many taxpayers and charitable organizations were uncertain about new Internal Revenue Service rules requiring more documentation of donations.But now it seems old hat.
"Word has gotten around," said Norman Clark, a partner in the accounting firm of Clark Johnson & Robson in Ohio. "We're getting better substantiation from charities - how much of a contribution is deductible, how much isn't."
David DiManna, another accountant, has had similar luck.
"I've noticed this year a lot of charities are right up front in issuing letters," he said. "If a ticket (to a charity-sponsored event) costs $250, they'll say, for example, that the meal value is $50, and the balance is available as a deduction. The charities have taken a proactive stance."
That's probably no accident.
The United Way of Greater Toledo started spreading the word more than two years ago, according to Kim Sidwell, public relations director for the umbrella group that represents 75 charitable organizations in the area.
"For us, it created quite a huddle to make sure we were following the rules and regulations," said Ms. Sidwell.
Initially, "there was a lot of confusion about the receipts," said Chuck Willis, vice president of administration for United Way. "We finally got some software changes to our accounting system. We try to keep up with those who give $250 or more (a threshold in the regulations). If they give $250 four times a year, they will get four letters. We're as accommodating as we can possibly be."
The new rules, which went into effect for last year's tax returns, essentially require written documentation for contributions of more than $250.
That includes showing the amount of cash or a description of the donated property, and a statement as to whether the charity gave anything in return - such as tickets to a concert or merchandise.
Some other guidelines in IRS Publication 17, Your Federal Income Tax (Tax Guide 1995):
- An organization that receives a payment from you must provide a written statement if the payment is more than $75 and is partly a contribution and partly for goods or services. The statement should state that you can deduct only the amount that is more than the value of the goods and services received.
- Contributions can be deducted only if made to qualified organizations. To find out whether an organization qualifies, ask the group, or check IRS Publication 78, Cumulative List of Organizations.
"For us it hasn't been a problem," said Ken Mackowiak, marketing specialist for Goodwill Industries.
"We have had a program in effect for years, even before it became law. We issue tax receipts (for donated goods) on the spot." However, Mr. Mackowiak added, the donor, not the charity, is responsible for estimating the value of the donated goods. The charity merely describes the goods.
Another way to make a charitable donation is to give appreciated property, the Ohio Society of Certified Public Accountants advises.
"Suppose you donated stocks that you bought two years ago at $5,000 which are now worth $15,000," says the society. "By offering the appreciated stock, you avoid paying the capital gains tax that would be due on the $10,000 if you sold the stock yourself."
The donor can deduct the $15,000 value, and the charity doesn't have to pay capital gains tax, either.
But, the CPA group reminds, there are limitations. "In general, you are allowed charitable deductions of up to 50 per cent of your adjusted gross income for gifts of cash. When contributing appreciated property, your deduction is limited to 20 percent to 30 percent."
And some types of appreciated property are subject to other limitations.
But, still, it could be the best of both worlds.
(Distributed by Scripps Howard News Service.)