Charitable Contribution Planning: Good Measures to Protect Yourself Against a Charitable Deductions Audit

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Charitable Contribution Planning: Good Measures to Protect Yourself Against a Charitable Deductions Audit 

Thursday, December 22, 2016


December is a big month in the U.S. for donations to charity. Americans open their hearts and wallets to charitable organizations who feed the hungry, shelter the homeless and educate our youth as well as to many other worthy causes. Philanthropy has been part an important part of the American identity since before the Declaration of Independence was signed.

The U.S. government recognized the importance of American philanthropy almost one hundred years ago when the charitable deduction was introduced into tax law during World War I. As you may be aware, if you itemize on your tax return, your contributions to qualified charities may be deducted from your adjusted gross income to reduce the amount of tax you owe. This powerful incentive can encourage increased largesse from those with charitable intent.

Unfortunately, there have been instances where taxpayers have abused this well-intentioned deduction. In response, the IRS looks very closely at the amount of charitable deductions taken by a taxpayer. Earlier this year, the IRS listed “overstated” charitable contributions as one of its “Dirty Dozen” tax scams.[i]  As a result, large charitable contribution deductions can trigger an IRS audit.

If you are making charitable contributions this year and plan to take the deduction for them, take steps now to make sure you don’t run into problems down the road. Follow the rules carefully and precisely. In an audit situation, if the requirements for deducting charitable contributions are not followed, deductions may be disallowed, leading to additional taxes, penalties and interest. In more severe instances, taxpayers may even face criminal prosecution for tax evasion or other serious offenses.[ii]

To prevail in a charitable deductions audit, here are some general guidelines to follow in advance:

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