By Mark Schwanhausser
SAN JOSE MERCURY NEWS

February 10, 2008

Donors need more than a kind heart to get a tax deduction.

DEDUCTIBLE CONTRIBUTION RECORDS To deduct cash contributions of any amount on 2007 federal income taxes, you must have a written record. Cash contributions: These include those paid by cash, check, electronic funds transfer, credit card or payroll deduction. To deduct a contribution other than payroll, you must have: A canceled check, bank, credit union or credit card statement, or receipt Each must show the organization's name and the amount and date of the contribution. For payroll deductions: You must have a pay stub or Form W-2 showing the amount and date of the contribution and a pledge card naming the organization. THE NUMBERS Contributions in tax year 2005: $134.5 billion: Married filing jointly $34.5 billion: Single filers $14.3 billion: All other filing status SOURCE: Internal Revenue Service

In 2005, federal lawmakers tightened the rules so folks couldn't phone charities to tow off their jalopies but then value them at Kelley Blue Book prices come tax time. Then, in late 2006, Uncle Sam took aim at contributions of clothing and household goods left on the curb, allowing deductions only if items are in “good” condition, although the Internal Revenue Service has yet to define what that means.

Now it's tougher to give cash. Starting with 2007 tax returns, donors need receipts or canceled checks if they drop money into the collection plate at church or the Salvation Army kettle, or dig into their pocket to help out charities.

“It's the biggest change in the crackdown,” said Sharon Kreider, a Sunnyvale certified public accountant.

Donors who kick in more than $250 in cash or property still need a letter from the charity stating the donation's value. The receipt for such sums must specify whether you received anything in return for your money, such as a church dinner or a thank-you gift.

If you make gifts with a cumulative value of $5,000 or more, you need a qualified written appraisal completed no more than 60 days before the donation, and both the appraiser and the charity must sign Form 8283. That can cause headaches for taxpayers who give, say, $3,000 worth of furniture to one charity in March and $3,000 of furniture to a different charity in November.

For example, a Goldman Sachs investment banker and self-described “impulsive buyer” of designer clothes and shoes lost a Tax Court case in March 2007 that underscores the necessity of good records. She claimed it was her habit to wear her high-end goods once or twice, then donate them to a New York thrift shop.

She deducted almost $49,000 in property and nearly $6,000 in cash donations in 2002, but the Tax Court cleaved that to about $9,000 and $1,000, respectively, ruling that her records were inadequate and her valuations were “optimistic.”

For cash contributions, it used to be that taxpayers could survive an auditor's scrutiny if they simply kept a log.

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