First, I should remind everyone that now is the best time to redo your withholdings on your W4. The best place to do this is the IRS Withholding Calculator. By recalculating your withholdings annually, you will help ensure that you are not giving the government an interest free loan AND that you will not owe money at the end of the year. If you are getting married or having a child this year, it counts for the entire year...so calculate it as such.
That said, there are some new rules in the IRS this year which have caused us a bit of a headache. Defined in IRS publication 526 for 2007, there are new rules about deductions and in particular what documentation must be needed. For cash contributions of any amount, you must have one of the following regardless of the amount you contribute:
1. A bank record that shows the name of the qualified
organization, the date of the contribution, and the
amount of the contribution. Bank records may include:
1. A canceled check,
2. A bank or credit union statement, or
3. A credit card statement.
2. A receipt (or a letter or other written
communication) from the qualified organization
showing the name of the organization, the date of the
contribution, and the amount of the contribution.
3. The payroll deduction records described next.
Since our bank doesn't make available to us our cancelled checks, we are stuck in limbo hoping the charities give us a receipt or we will have to figure out the check numbers and request them of the bank.
But the new rules don't stop there, they take special exception to any single contribution over $250. If you have five $50 contributions, that wouldn't count. But, a single $250 contribution has special rules. The rules are that the charity that you gave this $250 or more donation to must acknowledge that contribution and the acknowledgment must meet these tests:
1. It must be written.
2. It must include:
1. The amount of cash you contributed,
2. Whether the qualified organization gave you
any goods or services as a result of your
contribution (other than certain token items
and membership benefits),
3. A description and good faith estimate of the
value of any goods or services described in (b)
(other than intangible religious benefits), and
4. A statement that the only benefit you received
was an intangible religious benefit, if that was
the case. The acknowledgment does not need to
describe or estimate the value of an intangible
religious benefit. An intangible religious benefit
is a benefit that generally is not sold in
commercial transactions outside a donative (gift)
context. An example is admission to a religious
3. You must get it on or before the earlier of:
1. The date you file your return for the year you
make the contribution, or
2. The due date, including extensions, for filing
Overall, this makes it tougher on those of us who are contribute to various charities. In a given year, thanks to many queries for support, Heather and I may give to 15-20 charities. Now, we have to try to track down receipts, canceled checks, and acknowledgments for all of these contributions. Some contributions may be as low as $5-10. So, at some points I guess the government wins because people may not go through the hassle for deducting those small contributions.