Proper documentation to support donations to Non Profits (NP) is important in the event of an audit.   This is what Mr. John (Giancarlo) Meazzo, President of GMA3000.COM, shared with his clients at a recent conference GMA held in Los Angeles.   He suggested that it is a good practice to send thank you letters to all donors vThis allows the NP to hand write a few words to make the letter more personalized.   He stated that a small client today may be a larger client tomorrow.  A thank you letter with some information on how important the donation is, no matter how small it is, may go a long way.  Mr. Meazzo is a top expert in Non Profit accounting and financial management.   GMA provided interim, turn around and outsource CFO and accounting services to NPs in various industries.  Here is a summary of what donors should know when making donations.

Receipts for Donations:

Donors must keep records reflecting the amount of cash and noncash contributions made during the year. The types of records that must be kept depend on the amount of the contributions and whether they are cash or property.

If the donation is over $75 is partly a contribution and partly a payment for goods or services, a qualified organization must give the donor a written statement.  Donors can deduct only the amount of your contribution that is more than the value of the benefit they receive.  Donor should keep the written statement for their records.

For a cash contribution, the type of records you are required to keep depends on whether the contribution is:

Contributions fall into 2 categories – less than $250 – more than $250

Each payment is a separate contribution.  Therefore in figuring whether your contribution is $250 or more, do not combine contributions.

For each cash contribution under $250, you must keep one of the following:

A cancelled check or a legible and readable account statement that contains the amount of the contribution, the date it posted on the statement (bank or charge card)   and to whom paid.

For each contribution over $250, you must keep a receipt, letter or other written document from the qualified organization that contains the A. date of the contribution B. the name of the organization, C. amount contributed.

If you have not got some records of documentation to support your charitable contributions, then you aren’t allowed to take them: “You are not allowed to deduct your charitable contributions because you did not satisfy the acknowledgment and record keeping requirements.”

For additional information go the the IRS website:

http://www.irs.gov/pub/irs-pdf/p526.pdf

Donations of Property

If you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction.  Your basis in property is generally what you paid for it. If you need more information about basis, get Publication 551. Different rules apply to figuring your deduction, depending on whether the property is:

Ordinary income property,

Property is ordinary income property if its sale at fair market value on the date it was contributed would have resulted in ordinary income or in short-term capital gain.

Capital gain property.

Amount of deduction – general rule. When figuring your deduction for a gift of capital gain property, you generally can use the fair market value of the gift.  In some situation you must reduce the fair market value by the amount that would have been long-term capital gain if you had sold the property for its fair market value. See the IRS publication 526 for more information.

This information is general to let reader understand that there are IRS codes for these matters.  You should consult your accountant, attorney or financial adviser before you donate money or other assets.

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