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At RCHolden Business Services LLC, we specialize in expert tax preparation services to help you maximize your refund. Our team in Charleston SC is dedicated to providing top-notch accounting solutions for individuals and businesses.

The Importance of Documenting your Donations for Tax year 2026

If you donate clothing or household goods to charity, there’s an IRS requirement you need to know about.

In a recent Tax Court case, a taxpayer lost a $6,760 charitable deduction—not because the donations were improper, but because his documentation failed to meet strict technical requirements. The court did not question his generosity. It denied the deduction because the receipts and Form
8283, Noncash Charitable Contributions, were incomplete. Here’s the key issue: For non-cash donations over $250, you must obtain a
contemporaneous written acknowledgment from the charity (meaning it must be obtained at the time of the donation).

Once an audit begins, you cannot create the missing documentation afterwards. For donations over $500, you must also maintain detailed records showing what you donated, when you acquired the items,
and their cost or basis. Form 8283 must be completed accurately, including donation dates and fair market values.

Generic receipts that say “miscellaneous household items” are not enough.

Key Take aways:

  • Before donating, prepare a detailed list of items, including descriptions and estimated values; take photographs; and provide the list to the charity so it can reference the list in its acknowledgment.
  • Keep all supporting records with your tax files. You can deduct charitable contributions, but—and this part is critical—only when you satisfy the substantiation requirements
    that law and regulation demand.
  • The rules tighten as the donation amount increases, with larger contributions triggering stricter documentation standards. “Contemporaneous” means the donor receives the acknowledgment no later than the earlier of the filing date or due date of the return (including extensions).  
     Think about your last trip to Goodwill or the Salvation Army. You pulled up, unloaded bags or boxes of clothing and household items, and received a receipt listing the organization’s name, address, and maybe a vague phrase such as “miscellaneous household items.” The employee at the donation center certainly
    didn’t catalog each shirt, record every kitchen utensil, or describe the condition of your donated microwave. This practice makes perfect sense from the charity’s point of view. These organizations focus on collecting and redistributing donated goods, not on performing detailed inventory assessments for tax compliance. Cataloging every item would overwhelm their staff and resources. The contemporaneous documentation requirement deserves
    special attention.
  • Once an IRS audit starts, taxpayers cannot fix defective records—the window for proper substantiation has already closed. This harsh rule creates substantial risks for taxpayers who assume they can “fix” their records if questioned.
    Donors know what they contributed, can photograph the items
    before delivering them, and can prepare an inventory at the time
    of donation. The charity simply needs to confirm receipt of the
    items listed by the donor.

Some practical steps for donors:
• Before donation, prepare a detailed list of items to be
donated, including descriptions, acquisition dates, original
costs, and estimated fair market values.
• Photograph items before donation, particularly for larger or
higher-value items.
• Provide the list to the donee organization at the time of
donation.
• Request that the donee acknowledgment specifically
reference and incorporate your list of donated items.
Obtain the acknowledgment before filing your return, or by the
return’s due date including extensions (whichever is earlier).
Complete Form 8283 accurately and completely, including all
required values and dates.
Retain everything: your list, photographs, the donee
acknowledgment, Form 8283, and any other supporting
documentation.

     

    Taxpayer News

    • Interest rates remain the same for the fourth quarter of 2026

      IR-2026-98, Aug. 21, 2026

      WASHINGTON — The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning Oct. 1, 2026.

      For individuals, the rate for overpayments and underpayments will be 7% per year, compounded daily. Here is a complete list of the new rates:

      • 7% for overpayments (payments made in excess of the amount owed), 6% for corporations.
      • 4.5% for the portion of a corporate overpayment exceeding $10,000.
      • 7% for underpayments (taxes owed but not fully paid).
      • 9% for large corporate underpayments. 

      Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

      Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

      The interest rates announced today are computed from the federal short-term rate determined during July 2026. See the revenue ruling for details.

      Revenue Ruling 2026-15 announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin 2026-36, dated Aug. 31, 2026.

    Taking Advantage of the Qualified Charitable Distribution (QCD)

    A valuable tax benefit for our clients who are age 70 ½ and
    older is the Qualified Charitable Distribution (QCD).

    • A QCD allows eligible taxpayers to transfer funds directly from a
      traditional IRA to a qualified 501(c)(3) charity and exclude that
      amount from taxable income. This is especially valuable for those taxpayers who cannot itemize due to the higher standard deduction, and the temporary increase in the standard deduction for those age 65 and older.
      They would not benefit, from a tax perspective, from their
      charitable donations since Schedule A, Itemized Deductions,
      would not be filed with the tax return. By taking advantage of
      the QCD rules, you would get a direct and immediate tax benefit
      from your charitable cash donations. Non-cash donations are not
      eligible for this tax benefit.
    • The benefit is only available for a traditional IRA. If your funds are in an employer sponsored plan, we recommend setting up an IRA at your bank and initiating a trustee-to-trustee transfer from your qualified plan to an IRA. Once there, the funds can either be transferred via a trustee-to-trustee transfer from the bank to the charity or with a check from the IRA to the charity.
      The funds cannot be transferred to your personal account, and
      then transferred to the charity, as that would invalidate the QCD.

    • Your tax return should reflect the distribution of the funds from
      the IRA, but a check box is used to notify the IRS that these
      funds were transferred in a QCD and therefore not taxable.
    • The QCD transfer of funds will also satisfy your required minimum distribution (RMD) for those taxpayers who are age 73 or older.
    • The maximum allowable QCD for 2026 is $111,000 per
      individual. Therefore, a married couple could potentially move
      $222,000 from their taxable income. Each spouse, however, must
      have their own traditional IRA in which to make the QCD.
    • If you are not sure if the charity is an eligible 501(c)(3), the
      IRS has a page on their website through their Tax Exempt
      Organization Search Tool (https://www.irs.gov/charitiesnon-profits/search-for-tax-exempt-organizations ). If you are
      approached by an organization (particularly one of which you are
      not familiar), we strongly recommend you verify their tax-exempt
      status.

    Qualified Overtime Compensation Deduction, 

    Will you be able to deduct this from your 2026 gross Income?

    See Frequently asked questions below to see if you may be able to benefit from this deduction. 

    General information

    Q1. What is qualified overtime compensation for purposes of the deduction?

    A1. Qualified overtime compensation is overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act (FLSA) (29 USC § 207) that exceeds the regular rate at which the individual is employed. For example, if an individual is paid at “one and one-half times” their regular rate for an hour of overtime work as required by the FLSA, the “half” portion of the “one and one-half times” paid for an hour of overtime work is qualified overtime compensation.

    • For overtime to be required under the FLSA, it must, among other requirements, be paid to an individual who is both covered by the FLSA and not exempt from the FLSA’s overtime requirement (an FLSA overtime-eligible employee). See Q2/A2 and Q3/A3 to determine if you are covered by and not exempt from the FLSA’s overtime requirement.
    • An individual who is ineligible for overtime under the FLSA does not receive qualified overtime compensation regardless of other laws or circumstances (such as a collective bargaining agreement) providing for overtime pay.
    • Individuals eligible for overtime under the FLSA generally must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than one and one-half times their regular rate of pay. If an individual is eligible for overtime under the FLSA, but the individual’s employer pays more than is required under the FLSA, the qualified overtime compensation is limited to the portion of the overtime that is required by the FLSA that is in excess of the regular rate. For example, if an employer pays double the individual’s regular rate for hours worked over 40 in a workweek, only the one-half portion that is relied upon to comply with the FLSA requirement is qualified overtime compensation.

    Q2. How do I determine whether I am covered by and not exempt from the FLSA? In other words, how do I determine if I am an FLSA overtime-eligible employee?

    A2. Though it is common for employees working in the United States to be covered by the FLSA, there are many exemptions from its overtime premium requirement. Whether an individual is covered by and not exempt under the FLSA is a fact-specific determination that depends on the individual’s occupation, work activities, and/or earnings.

    More information on coverage and exemption under the FLSA can be found on the Department of Labor website. See Fact Sheet #14: Coverage Under the Fair Labor Standards Act (FLSA) | U.S. Department of Labor, and # 8 in the Handy Reference Guide to the Fair Labor Standards Act.

    Q3. I am a federal employee, how do I know whether I am an FLSA overtime-eligible employee?

    A3. FLSA eligibility for federal employees is typically documented on the employee’s Standard Form 50, Notification of Personnel Action; see block 35, “FLSA Category”; “E” means exempt or FLSA-ineligible and “N” means nonexempt or FLSA overtime-eligible. Under 29 U.S.C. 204(f), the Office of Personnel Management (OPM) administers the FLSA for most federal employees. See OPM FLSA regulations and OPM FLSA fact sheet.

    Although OPM administers the FLSA for most federal employees, there are some exceptions. For example, DOL’s FLSA regulations and guidance cover employees of the Library of Congress, United States Postal Service, the Postal Regulatory Commission, and Tennessee Valley Authority. See 29 U.S.C. 204(f). Additionally, the Office of Congressional Workplace Rights regulates the FLSA for legislative branch employees generally. See OCWR Rules and Regulations - Fair Labor Standards Act for more information.

    Q4. What is the deduction amount? Are there limits to the deduction?

    A4. The deduction is up to $12,500 of qualified overtime compensation earned for the year per return ($25,000 in the case of a joint return). The deduction is reduced if a taxpayer’s modified adjusted gross income (MAGI) for the tax year exceeds $150,000 ($300,000 for joint filers). See Notice 2025-69 PDF for more information on how to calculate MAGI for this purpose.

    Q5. Are there other rules that apply to the deduction?

    A5. Yes.

    • The taxpayer who received the qualified overtime compensation must have a social security number valid for employment and must include the social security number on the tax return claiming the deduction.
    • If the taxpayer is married (within the meaning of section 7703), the taxpayer and the taxpayer’s spouse must file a joint return to claim the deduction. If both spouses received qualified overtime compensation, both spouses must have a social security number valid for employment and must include both social security numbers on the tax return claiming the deduction.

    Q6. Will qualified overtime compensation be separately reported to individuals on Form W-2, Form 1099-NEC, or Form 1099-MISC? Doesn’t qualified overtime have to be separately reported in order for an individual to take the deduction?

    A6. It depends on the tax year.

    • For tax year 2025, employers and other payers are not required to report qualified overtime compensation separately on Forms W-2, 1099-NEC, and 1099-MISC. See Notice 2025-62 PDF. For 2025, some employers and other payers may choose to separately report the amount of qualified overtime compensation to employees using box 14 of Form W-2 or to employees or payees through an online portal or on a separate statement. If individuals do not receive a Form W-2 or other statement from their employer or other payer for tax year 2025 that separately reports the amount of qualified overtime compensation, they may use any of the methods described in Notice 2025-69 PDF and the Instructions to Schedule 1-A that are included in the Instructions for Form 1040 PDF to calculate the amount of qualified overtime compensation.
    • For tax years 2026 and later years, employers and other payers are required to separately report qualified overtime compensation. Forms W-2, 1099-NEC, and 1099-MISC will be updated to allow employers and other payers to provide separate reporting of an individual’s qualified overtime compensation.

    Q7. I am an FLSA overtime-eligible employee, and I did not receive information from my employer on how much qualified overtime compensation I received during tax year 2025. How can I find more information to help me determine my deduction for qualified overtime compensation?

    A7. You can find more information in the following:

    Q8. Where can I get more information on the FLSA and overtime pay in general?

    A8. More information on the FLSA is available at WHD Fact Sheets, Overtime Pay: General Guidance, and Handy Reference Guide to the Fair Labor Standards Act.

    For Federal employees covered by OPM-issued FLSA regulations, see the OPM FLSA fact sheet titled “How to Compute FLSA Overtime Pay.”

     

     

    Our services

    We offer a range of specialized services tailored to meet your individual needs. Our approach is focused on understanding and responding to what you require, providing effective and practical solutions.

    Individual (1040) Tax Return

    Comprehensive individual tax preparation services, helping you navigate complex tax laws and optimize your returns..

    Effortless Payroll Services for Your Business

    Efficient and accurate payroll processing services, ensuring your employees are paid on time and in compliance with all regulations. Automatic employee and employer tax filing. 

     

    Business Tax Return

    Expert preparation of business taxes, ensuring compliance and maximizing potential deductions for your business.

    Frequently Asked Questions

    What documents do I need for tax preparation?
    You will need your W-2 forms, 1099s, and any other relevant financial documents for tax preparation.

    How often should I update my financial records?
    It is recommended to update your financial records monthly to ensure accuracy and compliance.

    Can you help with retirement planning?
    Yes, our financial consulting services include retirement planning to help you secure your financial future.

    “I have been a client of RCHolden Business Services LLC for years, and I am consistently impressed by their professionalism and attention to detail. Their tax preparation services have saved me time and money. Highly recommend!”

     

    Contact us

    Have a question or want to book an appointment? Fill out the form below or give us a call at (843)822-5157

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