Note: The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees.

Picture a 54-year-old budget manager at a state agency. She's in PERS 2 with 27 years of service, and she's aiming to retire at 58.

She and her husband have about $750,000 saved between her DCP account and their IRAs. They give every year. Each December she writes a $1,500 check to their church, and she supports a couple of local nonprofits through payroll deduction at work.

Her records are the canceled check and her pay stubs.

That feels like plenty. It turns out the IRS may not agree.

A $665,000 deduction and one missing line

This spring, two Tax Court decisions denied a $665,000 charitable deduction to a pair of cousins who donated 13.3 acres of land to Highland City, Utah [1].

They had an appraisal and the required IRS Form 8283. They'd also sent the city their own letter calling the land a gift, and a city council report noted the donation involved no expenditure by the town.

The judge still denied the deduction. What was missing was a statement from the city saying it gave them nothing in return. (The cousins plan to ask for a rehearing, so the story may not be over.)

Reading the case, two details stand out to me. The letter the cousins wrote didn't help, because the acknowledgment has to come from the charity [2]. And the council report came from the city, but it described what the gift cost the town. It didn't say what the cousins got back.

The same rule applies whether you're giving land or writing a check to your church. Your own records can't stand in for the charity's statement, and the statement has to say the words.

What the letter has to say

For any single gift of $250 or more, you need a written acknowledgment from the charity before you can deduct it. The IRS calls this a contemporaneous written acknowledgment.

The letter names the charity and states the cash amount, or describes the property you gave. It also has to say whether you got anything back, and if you did, give a good faith estimate of its value.

"Contemporaneous" has a specific meaning. You need the letter in hand by the date you file, or by your due date with extensions, whichever comes first.

A canceled check shows you paid. It says nothing about whether the church gave you anything in return. So for that $1,500 December gift, the check alone falls short.

Smaller gifts are treated differently. Separate gifts under $250 aren't added together for this rule, even when they total more over the year [2].

Where payroll giving gets tricky

State employees can give through the Combined Fund Drive by payroll deduction, and DRS retirees can keep those deductions going from their pension checks [3].

For payroll gifts, the IRS accepts a pay stub or W-2 along with a pledge card from the charity. Each deduction is looked at on its own. If a single deduction is $250 or more, the pledge card also needs the no-goods-or-services statement [2].

The CFD emails donors a record of their giving each February. That's the document I'd read closely before filing.

Charity dinners and auctions catch people too. If you pay $100 for a concert ticket worth $40, your deduction is $60. When you pay more than $75, the charity has to tell you what you received is worth. Keep that disclosure with your tax papers.

The 2026 changes pull more people in

Most of the Washington couples I work with take the standard deduction. Until this year, that meant their giving never showed up on their return.

Starting in 2026, you can deduct up to $2,000 of cash gifts on a joint return without itemizing [4]. Gifts to donor-advised funds don't qualify, and neither do gifts of stock or other property.

That's good news for our budget manager. It also means she may be claiming gifts for the first time, and the $250 acknowledgment rule comes with the deduction.

If you do itemize, there's a new floor. Only giving above 0.5% of your adjusted gross income counts [5]. A couple with $180,000 of AGI would lose the first $900 of giving as a deduction.

Some donors are responding by bunching gifts into fewer, larger years. That pushes more individual gifts over $250, which means more letters to track down.

Later, when the money comes from an IRA

Once you reach 70½, a qualified charitable distribution lets you send money straight from an IRA to a charity without it counting as income [6]. The 2026 limit is $111,000 per person.

QCDs need the same kind of written acknowledgment [7].

QCDs can only come from IRAs [6], and your DCP account is a 457(b). If you expect to give from retirement savings in your 70s, where those dollars sit matters.

Gifts of appreciated stock from a taxable account follow their own rules, including a 30% of AGI deduction limit for gifts to public charities [1]. Noncash gifts over $5,000 bring in Form 8283 and often a qualified appraisal.

Before you file

Pull every gift of $250 or more from this year. Check that each one has a letter with the no-goods-or-services line, or a dollar value if you did receive something.

If a letter is missing, ask the charity for one now. Once your return is filed, a letter that shows up later won't count.

If you’re concerned about your current financial plan and would like to explore professional help, consider reaching out.

I specialize in helping Washington Public employees who are nearing retirement or are retired, reduce taxes, maximize pensions, and retire stress-free.

No sales pressure. No obligations. Just professional guidance to help you make the best decision for your financial future.

-Seth Deal

Sources

[1] Laura Saunders. "How to Avoid the Tiny Blunder That Cost Two Donors a $665,000 Tax Deduction." The Wall Street Journal. May 29, 2026. https://www.wsj.com/personal-finance/taxes/how-to-avoid-the-tiny-blunder-that-cost-two-donors-a-665-000-tax-deduction-ab5aa643​

[2] Internal Revenue Service. "Publication 1771, Charitable Contributions: Substantiation and Disclosure Requirements." Rev. November 2023. https://www.irs.gov/pub/irs-pdf/p1771.pdf​

[3] Washington Secretary of State. "Combined Fund Drive." https://www.sos.wa.gov/statewide-programs/combined-fund-drive​

[4] Internal Revenue Service. "Working Families Tax Cuts." Updated September 25, 2026. https://www.irs.gov/newsroom/working-families-tax-cuts​

[5] Internal Revenue Service. "Understanding the One Big Beautiful Bill: Individual Tax Provisions, YouTube video text script." March 2026. https://www.irs.gov/newsroom/understanding-the-one-big-beautiful-bill-individual-tax-provisions-youtube-video-text-script​

[6] Congressional Research Service. "Qualified Charitable Distributions from Individual Retirement Accounts (IRAs)." https://www.congress.gov/crs-product/IF11377​

[7] Internal Revenue Service. "Reminder to IRA owners age 70½ or over: Qualified charitable distributions are great options for making tax-free gifts to charity." IR-2022-201. November 17, 2022. https://www.irs.gov/newsroom/reminder-to-ira-owners-age-70-and-a-half-or-over-qualified-charitable-distributions-are-great-options-for-making-tax-free-gifts-to-charity​

[8] Internal Revenue Service. "Publication 526 (2025), Charitable Contributions."

Seth Deal is an investment advisor representative of LifeFocus Financial Advisors, LLC, a registered investment adviser. This email is for informational purposes only and does not constitute a recommendation to buy or sell securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and risk tolerance.

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