Documenting 2013 Financial Donations and Planning for 2014

Is your charitable gift record-keeping system working for you?

Jan 28, 2014 at 11:00AM

In 2013, you may have given a tax-deductible gift of cash, donated appreciated stock, transferred ownership of a valuable possession, or given from other resources. Meanwhile, the parameters for IRS charitable deductions for 2014 are in question until Congress acts. A good accounting system for your charitable gifts can help you deal with whatever the tax implications may be.

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During these first few months of 2014, if you are like most people who itemize deductions, you are busy gathering financial data to prepare your personal tax filings. Do you have a good system for documenting all of your gift events, amounts, and recipients? If not, then you have an opportunity, while you are compiling the charitable-gift information for use on your 2013 tax filings, to improve or start using a new accounting system. This should help you track your charitable giving more closely and will make your tax preparation easier next January.

The large tax-preparation software companies have all built some of this functionality into their software. If you use one of those products, check out their charitable-donation functionality to see if it will work for you. If not, talk to your tax preparer about it or set up a system for yourself.

If you gave a gift of appreciated stock, or plan to, check out my fellow Fool Roy Lewis' article on the subject. on the topic posted on The Fool you can refer to. For other types on noncash gifts of more than $250, you will probably need to contact the charitable organization about making the gift and get the documentation you need. For more on these instances, refer to IRS Publication 526. With cash gifts, there are a number of things you need to know to help you track donations and plan for this coming year.

IRS rules require nonprofits to send an official receipt for donations of more than $250. That paper trail makes it easier to account for those gift in filings with itemized deductions. If you make donations below $250, you will probably not receive receipt letters for those donations. Yet you will still need to document them -- you will be glad you did if you are audited.

For each charitable donation you make in any amount of money -- in cash, check, charge, etc. -- the IRS requires you to have an official record of payment (not a commitment to make a charitable gift) in the form of a canceled check, credit card statement, or a receipt from the charity. This official record will need to show 1) the legal name of the organization, 2) the date of the contribution, and 3) the amount of the contribution. Whether you have a receipt or are documenting a smaller cash gift, your tracking system should show these three elements.

Be methodical -- if you don't have a system, here are some suggestions of how to keep track:

  • Create a simple workbook or spreadsheet. You can do this in Apple iWorks Numbers, Microsoft Excel, or even an online software like Google Spreadsheets.
  • If you regularly use accounting software (like Quicken), you can also track your donations using that software.
  • As mentioned above, use a tax-preparation software charitable-donation module.

Meanwhile:

  • Create both electronic and hard-copy files to capture donation acknowledgements and other paperwork.
  • If you have written checks under $250, be sure to get copies.
  • If you have given by credit or debit card, it will show up on your paper statements -- or you can retrieve it on the Web.

One of the great opportunities in having a good accounting system for your charitable giving is that it facilitates your planning for the coming year. A challenge to planning this year is that the IRS' rules on deductibles are still not settled. Although people in the philanthropic sector are optimistic that there will be few or minor changes, President Barack Obama has been an advocate of reducing charitable deductions for wealthy people. It is yet to be seen how the current Congress will act with regard to charitable deductions for 2014. 

Setting goals and priorities for charitable giving in 2014 is still a good practice. You will just have to make some assumptions about whether rules will change or remain as they were in 2013. Then, if any changes are made when new tax rules are available, you can adjust your plan and still fulfill your goals by the end of the year.

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