• Sample Client Tax Letter (PDF)
• How to Avoid the Tiny Blunder That Cost Two Donors a $665,000 Tax Deduction
• 3 Things RMD Timing Actually Affects (And How to Choose Your Schedule)

Earlier this year, the U.S. Tax Court threw out a $665,000 charitable deduction. 

The donors were two cousins who had donated more than 13 acres of land to a city in Utah to preserve as permanent open space. 

They had an appraisal, they completed the IRS form required for large property gifts, and they had signed letters documenting the donation. And yet the court denied the entire deduction. 

Not because the land wasn’t worth $665,000. In fact, the court never even got that far. 

The deduction was disallowed because of a paperwork problem.

At first, it sounded like one of those unusual tax stories that has little to do with most people. After all, most of our listeners probably aren’t planning to give away 13 acres of land.

But the rule at the center of this case is surprisingly ordinary. It can come into play when you write a check to your church, make a charitable gift from an IRA, donate appreciated investments, or buy a table at a fundraising event. 

And beginning this year, some of these rules can matter even if you don’t normally claim charitable deductions on your tax return.

So today, I want to use this unusual case to highlight a much more practical lesson: when it comes to charitable giving, what you give is only part of the equation. How you document it, when you give it, and how the transaction is structured can determine whether you receive the tax benefit you were expecting.

I’ll walk you through what went wrong in this case, a few common giving situations where small details can have a meaningful impact, and the exact four questions I’d ask before making your next charitable gift.

And if you’re a Stay Wealthy newsletter reader, I’m sharing four practical charitable-giving guides in today’s email to help you evaluate QCDs, donor-advised funds, which assets to give, and other giving strategies for you to consider.

If you’re not a newsletter reader, you can grab the charitable giving resources by going to youstaywealthy.com/email.

Along with practical checklists and guides like these, you’ll also receive a new retirement-focused article that I personally write and send every single Thursday, plus a handful of links to the best retirement articles I’ve read in the past week.  

So if you find this podcast helpful, I’m confident you’ll enjoy the weekly email as well.

Welcome to another episode of the Stay Wealthy Retirement Show. I’m your host, Taylor Schulte, and every week I cover the most important financial topics to help you stay wealthy in retirement. Ok, onto today’s episode.

Why Your Charitable Deduction Can Disappear (Even With a Receipt)

To understand how a $665,000 charitable deduction disappeared over paperwork and how it can apply to anyone making charitable gifts, let’s start at the beginning. 

In 2014, two first cousins, Clint and Stephen Martin, bought about 13 acres of land in Highland City, Utah. They purchased it at a tax auction for just $22,000, and four years later, they offered the property to the city as a gift. 

The city council accepted it, the cousins and the mayor signed a letter describing the transfer as a donation, and an appraiser valued the land at $665,000. 

Each cousin then claimed half of that amount as a charitable deduction on their tax return. 

Now, if you’re stuck on the fact that they paid $22,000 for land that was later appraised at $665,000, the IRS noticed that too and it challenged the appraisal. 

But here’s what makes this case so interesting: the court never had to decide whether the land was actually worth $665,000 because the deduction was quickly disallowed for a much simpler reason: paperwork. 

You see, when you make a charitable gift of $250 or more and want to deduct it, you generally need a written acknowledgment from the charity. That acknowledgment needs to describe the gift and, importantly, state whether you received anything in return. 

The tax code has a technical name for this: a “contemporaneous written acknowledgment.” But in the real world, it’s usually just the receipt or nice thank-you letter you get from the charity after making your donation. 

And this is where the Martins ran into trouble. They had plenty of documentation. They had the appraisal. They had the IRS forms. They even had a letter signed by the mayor describing the property as a donation. But none of those documents included one specific statement the law required: that the city had given them nothing in return. 

And there was one document that actually made things worse. Like many deeds, the Martins property deed used standard template language saying “the land was exchanged for $10.00 and other good and valuable consideration.” The $10 number is usually a traditional placeholder  – it’s commonly used to show that the parties exchanged something of value without listing the full deal terms and purchase price in the public record. So, put simply, the deed created the impression that the cousins may have received something in return, which became a problem for a gift they were claiming was entirely charitable.

Now, the Martins argued that if you looked at all of the documents together, it was clear and obvious this was a charitable gift… but, unfortunately, the court disagreed. The court’s reasoning was that this particular rule requires strict compliance – in other words, being close isn’t enough. And because the required language was missing, the entire $665,000 deduction was disallowed. 

Naturally, the Martins have said they plan to ask the court to reconsider the decision, but regardless of where the case ultimately goes, it highlights an important lesson for the rest of us: With charitable giving, the tax benefit can sometimes depend just as much on the paperwork as the gift itself.

And this raises a fair question: if the intent was clear, the donation was legal, and nearly every box was checked, why should the deduction disappear over one missing statement?

Critics of rules like this argue that the result is overly harsh, especially when there’s little doubt that a legitimate charitable gift took place. One nonprofit tax attorney suggested a simple solution: just add a checkbox to the IRS form confirming that the donor received nothing in return. 

To be fair to the other side, there’s a practical reason these rules exist, which is that the IRS may review a charitable deduction years after the gift was made, and it can’t realistically go back and reconstruct every conversation or determine what everyone intended at the time. So, for that reason, the tax code relies on specific documentation that can be verified later if needed. 

And that’s what makes this case so useful. The IRS never had to win a complicated argument about whether the land was really worth $665,000 – the missing language in the paperwork gave it a much simpler and easier reason to deny the deduction. 

The Same Rule Applies to Everyday Gifts

Now, you might hear this story about a large six-figure land donation and assume this is a problem reserved for unusual gifts of land, which likely doesn’t apply to most of our listeners. But the same documentation rule applies to much more ordinary charitable gifts, too. 

A 2012 Tax Court case involving a married couple named David and Veronda Durden is a good example. In 2007, the Durdens donated more than $22,000 to their church, mostly by check. They kept their canceled checks, and the following January, the church sent them a letter confirming the total amount they had given. So, on the surface, their records looked pretty solid. 

But again, the letter was missing the same basic statement that caused problems for the Martins: it didn’t say whether the Durdens had received any goods or services in exchange for their donations. And because of that, the IRS disallowed the deduction. 

The Durdens did actually go back to the church and were able to get a corrected letter with the proper language. But the timing was the problem. They had already filed their tax return, and the court ruled that the corrected acknowledgment came too late, confirming that more than $22,000 of charitable deductions remained disallowed. 

And that’s what I think makes this case, and many more just like it, especially relevant for everyday donors. A canceled check can show that money left your account and went to a charity. But for gifts of $250 or more, that alone generally isn’t enough – the IRS also wants written confirmation of whether you received anything in return for the gift. And equally as important, you generally need that acknowledgment before you file your tax return. 

So the practical lesson here isn’t that you need to become an expert in charitable-giving rules or start worrying about every donation you’ve ever made. With these court cases setting a clear precedent in recent years, most established charities, including the major donor-advised fund sponsors, issue receipts with the proper language automatically. 

Where you want to pay a little more attention is when you’re giving to a smaller organization that may not deal with a large volume of donations, doesn’t have an in-house tax and legal team ensuring they keep up with current requirements, or when the transaction is more complicated than simply writing a check. Because as both of these cases show, the IRS isn’t only looking at whether you gave money or property to charity – it’s also looking at whether the documentation supports the deduction you’re claiming. And one situation where that becomes especially important is when you receive something back in exchange for your gift. So let’s look at that next.

When You Get Something in Return

Suppose a charity you support – or your kids or grandkids school – holds an annual gala and you buy two tickets to attend for $1,000. If the dinner, drinks, and entertainment are worth $200, you don’t get to deduct the full $1,000 – your charitable contribution would be the amount donated minus what you received at the event, which in this case is $800. And the charity’s acknowledgment letter should tell you the estimated value of what you received so you know how much of the payment may actually qualify as a charitable gift. 

The same basic rule applies at a charity auction. If you pay $10,000 for a vacation package that’s really only worth $5,000, the deductible portion is the $5,000 you paid above its fair market value. 

In case you’re wondering, yes, there are exceptions for small, low-value items. For example, if a charity gives you a mug, tote bag, or some other small token of appreciation, that generally won’t reduce your deduction. The IRS does get specific about this, so much so that it publishes an official dollar limit for these small token items every year. For 2026, that cost limit is $13.90. 

The takeaway here is that when you give to charity and receive something of meaningful value in return, you need to separate the charitable portion of the payment from the value of what you received.

Now, that covers one common issue with traditional charitable gifts. But for many retirees, there’s another way to give that comes with a different set of tax rules: sending money directly from an IRA through a qualified charitable distribution, or QCD. And because the tax benefit works differently, there are a few additional rules and paperwork requirements you want to get right.

The Paperwork Behind a QCD

As a quick refresher, if you’re age 70½ or older, a QCD allows you to send money directly from your IRA to an eligible charity.

As I covered in last week’s episode on RMD timing, that distribution can count toward your required minimum distribution if processed correctly and is generally excluded from your taxable income. 

That last part is important. With a traditional charitable gift, you claim the deduction and, in turn, reduce your tax bill. With a QCD, the primary tax benefit generally comes from keeping the IRA distribution out of your taxable income in the first place.

That can make QCDs one of the most tax-efficient ways to give, especially when  required minimum distributions begin. But to receive that treatment, the transaction has to qualify as a QCD. And that means paying attention to a few important details. 

The first is documentation. For a QCD of $250 or more, the IRS says you need the same type of written acknowledgment as a regular deductible charitable gift. And because the gift is coming from the brokerage firm your IRA is held at rather than directly from you, the charity may not immediately know who made the gift. So if you’re making a QCD, it’s a good idea to notify the charity in advance and provide the name under which the distribution will arrive. If you don’t receive an acknowledgment letter, be sure to follow up well before you file your tax return. 

The second rule is that the money needs to go directly from your IRA to an eligible charity. Unfortunately, a donor-advised fund doesn’t qualify – in other words, you can’t send a qualified charitable distribution from your IRA to a donor advised fund. You also can’t take the IRA distribution yourself and then write a personal check from your bank checking account to the charity – that does not qualify as a QCD. In that scenario, you’ve simply taken a taxable IRA distribution and then made a separate charitable gift, which may result in a tax deduction, but even if it does, it significantly reduces the tax benefit of your donation.

There’s one more important detail, and this is where the issue we just discussed about receiving something in return becomes relevant again. With a regular charitable gift, receiving something of value in return may simply reduce the amount you’re allowed to deduct on your tax return. However, the rules are a bit more rigid with a QCD.

When making a QCD, the contribution has to be one that would otherwise be 100% deductible. So, for example, if you use IRA money to buy tickets to a charity gala and receive dinner, entertainment, or something else of meaningful value in return, the entire IRA distribution may fail to qualify as a QCD altogether. 

The final thing to know is to give yourself enough time to complete the transaction and make sure your tax preparer knows exactly what happened. A QCD must be completed by December 31 to count for that tax year, so this isn’t something I’d recommend leaving until the final few days of December, especially given how busy financial institutions can get that time of year. It’s also important to understand that the tax form you receive from your IRA custodian typically won’t identify the QCD for you.

The Form 1099-R will generally report the total amount distributed from the IRA, but it won’t tell you or your tax preparer how much of that distribution went directly to charity as a Qualified Charitable Distribution. And that is one of the primary reasons my firm prepares annual tax letters for all of our clients and their tax professionals.

In addition to outlining the tax forms they should expect to receive, the custom tax letter documents any important planning transactions we completed during the year for the client, including QCDs, Roth conversions, backdoor Roth contributions, 60-day rollovers, and about a dozen other common transactions that may need special attention when the tax return is prepared. If you would like to see a sample of one of these tax letters, I’ll add one to the show notes for today’s episode which can be found by going to youstaywealthy.com/303. 

The takeaway here is to keep good records, save the charity’s acknowledgment, and make sure your tax preparer knows which IRA distributions were QCDs. Because once again, the charitable intent may be completely clear. But if the transaction isn’t structured and documented correctly, you can lose the entire tax benefit you were expecting and made other planning decisions around.

Choosing What to Give

And that leads to another important decision: deciding where the gift should actually come from. 

Because when most people decide to give $10,000 to charity, the natural instinct is to write a $10,000 check. But depending on what you own and your age, cash may not be the most tax-efficient asset to give. 

We just talked about one example. If you’re over age 70½ and have money in an IRA, a QCD may allow you to satisfy some or all of your charitable giving directly from the IRA while keeping that distribution out of your taxable income. But if you’re not eligible for a QCD, or you have investments in a taxable account with large gains, appreciated stock may be another option worth considering. 

For example, suppose you own a stock you bought for $8,000 that’s now worth $20,000. If you donate the shares directly to an eligible charity, you can generally avoid paying tax on the $12,000 gain. And if you itemize and meet the other requirements, you may also qualify for a deduction based on the full value of the shares. 

In this scenario, the charity still receives a $20,000 donation, but you’ve removed a future taxable gain from your portfolio. The opposite is generally true as well. In a situation where you have an investment that has lost value, it may make more sense to sell it first, harvest the loss or apply it to your current year tax return, and then donate the cash proceeds to the charitable organization. 

So before making a meaningful charitable gift, I’d avoid automatically reaching for the checkbook. Take a quick look across your accounts first. IRA dollars, appreciated investments, and cash can all ultimately put the same amount of money in a charity’s hands, but they can produce very different tax outcomes for you. 

And beginning in 2026, there are a few additional tax rules that can affect that decision.

What Changed in 2026

For example, if you plan to take the standard deduction, one of those new rules will allow you to deduct up to $1,000 of cash gifts to charity, or $2,000 if you’re married filing jointly.

That’s a welcome change because, as I’ve shared on this show before, after the 2018 tax changes, only about 10% of taxpayers were receiving a tax benefit from charitable giving. 

There are two important limitations, though. First, gifts to a donor-advised fund don’t qualify for this new deduction, and the $250 acknowledgment rule still applies. So if you haven’t worried much about keeping charitable receipts in recent years, it’s worth paying closer attention again. 

Second, for taxpayers who itemize their deductions, there’s a different change. Charitable deductions now only count to the extent they exceed one-half of one percent of adjusted gross income. 

For example, if your adjusted gross income is $200,000, that threshold is $1,000. In other words, the first $1,000 you give to charity would not produce a deduction. That may make bunching several years of charitable gifts into a single tax year even more valuable. And this is where a donor-advised fund can help. A donor advised fund allows you to make a large charitable contribution in one year, claim the full deduction that year, and then distribute the money to your favorite charities over time. 

And if you’re already planning a Roth conversion or another year with unusually high taxable income, concentrating more of your charitable giving into that same year may help offset some of that additional income.

Four Questions to Ask Before Your Next Meaningful Gift

Ok, I know we covered a lot, and I certainly don’t expect you to remember every rule and opportunity discussed today. 

Instead, before making your next meaningful charitable gift, I’d suggest doing two things: 

First, be sure to grab the charitable giving resource guides I mentioned at the top of the show by going to youstaywealthy.com/email. 

And then, use those resources to help you navigate and answer these four important questions:

1. What am I giving? The first question is, “what am I giving.” Before reaching for the checkbook, look at the rest of your balance sheet. Investments with large built-in gains, or IRA dollars if you’re 70½ or older, may be more tax-efficient to give than cash.

2. What’s the best way to give it? The second question is, what’s the best way to give it?”  A $10,000 check, a $10,000 QCD, and $10,000 of appreciated stock all put the same amount in the charity’s hands. But the tax outcome for you can look very different.

3. What paperwork will I need? The third question is “what paperwork will I need?” For any single gift of $250 or more, make sure you’ll have a written acknowledgment before you file your tax return. For larger gifts of property, ask about appraisals and tax forms. And remember, that the responsibility ultimately sits with you, the donor, rather than the charity or your financial institution.

4. Does the timing matter? Lastly, the fourth question is, “does the timing matter?” For example, would bunching several years of gifts into one single year make sense? Is there a Roth conversion or another large income event this year that a meaningful gift could help offset? And if you’re making a QCD, are you giving yourself and your financial institution enough time to process it before the December 31st deadline?

You don’t necessarily need to run through this checklist for every small donation. But when the gift is large enough to have a meaningful tax impact, these four questions can help you avoid mistakes and make sure you’re giving in the most effective way.

Bottom Line

The bottom line is that charitable giving is one of those areas where a little planning before the gift is made can go a long way. 

Once you’ve decided how much you want to give and which causes you want to support, take a moment to think through where the money should come from, how the gift should be structured, what documentation you’ll need, and whether the timing matters. 

Because many of the mistakes we covered today are much easier to prevent before the money moves than they are to fix afterward. 

That’s ultimately what the Martins’ case illustrates. They made a legitimate charitable gift and had substantial documentation, but one missing requirement cost them the deduction they were expecting. 

You don’t need to memorize every charitable-giving rule. But when you’re making a meaningful gift, slowing down long enough to ask the right questions, and bringing in your tax or financial professional when appropriate, can help ensure the tax side of your generosity works the way you intended. 

Thank you, as always, for listening. And to view the research and resources referenced in today’s episode, just head over to youstaywealthy.com/303.

Disclaimer

This podcast is for informational and entertainment purposes only, and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.