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Timely Words Save Taxes

You make a large donation, get an acknowledgment from the charity, and retain your canceled checks. Isn't that enough for a charitable deduction? Not unless the acknowledgment contains some indispensible words. Can you fix it by getting the statement with those words later? No. 

Charitable gifts of $250 or more are only deductible if the taxpayer has the charity's written acknowledgment that includes (i) the amount of money or a description of the property contributed, (ii) whether the charity provided any goods or services in exchange for the donation, and (iii) the value (if any) of the goods or services provided to the donor.

The words "no goods or services were provided," commonly found in charitable acknowledgments, are there to comply with the law and to protect your deduction. But some charities overlook this important point. Their donors stand to lose their charitable deductions if the problem is not corrected now. Getting a "no goods or services were provided" statement later is insufficient. The Internal Revenue Code requires that the statement be obtained on or before the earlier of the date the taxpayer files a return or the due date (including extensions) for the filing of the return on which the donation is deductible. A corrected but late acknowledgement (obtained, for example, during an audit), will still lead to a lost deduction and the possible assessment of penalties and interest.

It is therefore important for taxpayers to take the following steps before filing their income tax returns:

  • Verify that they have an acknowledgment for each contribution of $250 or more
  • Make sure that the acknowledgment has the statement regarding whether goods or services were provided
  • If the statement is not there, have the charity issue a new acknowledgment containing the goods or services statement

This might necessitate extending your return, but that is preferable to having your deductions lost forever.

If you have a question about this or another tax matter, please call us.