Tax Tips: Can I deduct my cash donation to a charity?

The IRS has decided to get tougher on donations of money to charity. No longer can you give cash to a charity and just tell the IRS how much you gave. If you get audited, you'll find that your cash contribution is not allowed as a deduction unless you've got proper documentation.

When donating to a charity, your first step in taking a tax deduction is making sure that you're giving to a qualified charity. While collections for sick neighbors or terminally ill co-workers are nice to participate in, your contributions to them will not create a tax deduction. The IRS has an official list of organizations that are considered qualified charities in Publication 78, and only donations to those organizations can be deducted on your taxes.

Your next step is to determine whether or not you're receiving any benefit from your money. Fundraisers with things like raffle tickets or candy bars aren't a charitable contribution, because you're receiving a benefit from your money. You might be able to take a deduction if the money you give exceeds the fair market value of what you get in return, but you have to be careful.

Your final step is to get a receipt for your donation. Without it, your deduction is not allowed. Even those "cash" gifts to charity must be supported by some documentation, such as a canceled check, a bank statement, or a credit card statement. If you give the green stuff, you better get a written receipt or it doesn't count. More details can be found in IRS Publication 526.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.