Charitable Contribution Substantiation

[susieq]

If a client appears in the next couple of months and says he wants to deduct the contributions SALY, what will you tell him is the new law as of August 2006 regarding receipts or substantiation of donation?

It almost seems to me that amounts under $250 and over $250 are being handled differently.

[Brad Imsdahl]

The new law is cash donations need an acknowledgment. You can no longer include cash given to door to door people or cash thrown into the collection plate without getting some kind of receipt for it. You either have to use your checkbook, or get an acknowledgement from the organization.

I’m not going to require that my clients show me all of their documentation. I’m just going to simply say the rule, and let them decide how much they want to claim.

[New York Enrolled Agent]

Susieq

The new cash contribution rules are effective for tax years beginnning after 8/17/06. For almost all individual taxpayers this means cash contributions starting on 1/1/07. If I read your post correctly, you were concerned about 2006 tax returns. Reporting cash contributions on a taxpayer's 2006 return will be done as you have done in the past.

You need to educate your clients during this filing season, so there are no "unpleasant" conversations next year.

[Brad Imsdahl]

Sorry, I missed that little detail. It still might be a good idea to let clients know this year that this is the last year they can just estimate a cash amount.

I remember years ago the boss talking about the rule of 72. There was an un-written rule that the first $72 of charitable contributions needed no substantiation. Some took that to mean you could just add $72 for misc cash. Taxpayers would often ask us what the standard amount was for charitable contributions. That might be one of the reasons for the new rule.

[Black Bart]

Never heard of that.

the rule of 72.

Do you know what the origin of the $72 figure was?

[sea-tax]

Susieq

The new cash contribution rules are effective for tax years beginnning after 8/17/06. For almost all individual taxpayers this means cash contributions starting on 1/1/07. If I read your post correctly, you were concerned about 2006 tax returns. Reporting cash contributions on a taxpayer's 2006 return will be done as you have done in the past.

You need to educate your clients during this filing season, so there are no "unpleasant" conversations next year.

Would not the new rules apply to any contributions made from 8/17/06 to 12/31/06 for 2006 tax year. Meaning that any contribtuions made after 8/17/06 would need the proper support docs to be able to be deducted on 2006 return. Not sure just wondering

[DonPriebe]

When the rule applies

My reading is that the substantiation rules (requiring checks or receipts etc.) takes place for TAX YEARS beginning after August 18. For most individuals that would be the tax year beginning January 1, 2007.

The rules regarding no household goods that are not in "good" or better condition took effect on August 18. That impacts donations made in late 2006.

Does anyone know if there is an official "dirty socks" list of things that cannot be claimed?

[veritas]

Talk to Hillary

she is an expert appraiser for Bill's shorts. And pretty good at the futures market too.

I wonder if post Monica underwear is worth more than say pre-Paula Jones underwear?

I know let's have a poll BB.

[JG EA]

72

Do you know what the origin of the $72 figure was?

Rule of 72
The rule says that to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72. For example, if you want to know how long it will take to double your money at eight percent interest, divide 8 into 72 and get 9 years.

I know everyone know this, but just in case.

[Brad Imsdahl]

Do you know what the origin of the $72 figure was?

I think it was in my boss's head. He died in '93 and I took over half of his clients for '94. There were several other "un-written" rules I had to deal with for all these new clients....like deducting hair cuts for a TV anchor man, etc.

[sea-tax]

My reading is that the substantiation rules (requiring checks or receipts etc.) takes place for TAX YEARS beginning after August 18. For most individuals that would be the tax year beginning January 1, 2007.

The rules regarding no household goods that are not in "good" or better condition took effect on August 18. That impacts donations made in late 2006.

Does anyone know if there is an official "dirty socks" list of things that cannot be claimed?

Don is this just your interpretation of the new law or do you have some written authority. I am just curious because I see what you and NY EA are talking about and it does seem logical. However when I read it I also understand the wording to mean from 8/17/06 to 12/31/06 you have new rules. I guess I may be over thinking this but I sure could use a little help figuring this out.Thanks

[Gene V]

I agree with Don, that the new recordkeeping for cash starts in 2007.

Reading Pub. 17, Chapter 24, page 149
What’s New for 2006, they talk about Clothing and household item after August 17, 2006, no mention of cash contribution.
Then under What’s New for 2007, they talk about New recordkeeping requirements for cash contributions.

[Davc]

It still might be a good idea to let clients know this year that this is the last year they can just estimate a cash amount.

Say What? They have always been required to keep a record.

[DonPriebe]

Not just "keep a record"

Say What? They have always been required to keep a record.

Keeping your own records, such as writing your contributions into your day planner, will not cut it anymore. The records must have some third party authentication - such as cancelled checks, credit card statements, acknowledgements from the donee, etc.

[Jiggers]

New Rules

Keeping your own records, such as writing your contributions into your day planner, will not cut it anymore. The records must have some third party authentication - such as cancelled checks, credit card statements, acknowledgements from the donee, etc.

I guess that means that the Salvation Army will have to issue receipts for the cash contributions they receive at Christmas time in front of Wal-Mart and whereever else?

I have some clients that itemize and they bring in a detailed listing of their cash contributions, include the $10 put in the pot at the local Wal-Mart for the Salvation Army and other cash contributions put in for the second collection at church, whatever.

It will be an interesting year!