We always donate our giveaway items to Goodwill, Salvation Army, and other such organizations. However, I've never really known how to calculate the charitable cash value for tax deduction purposes. Are there any rules regarding this type of charitable giving?
If you itemize your deductions on Schedule A, you have an opportunity to take a deduction for donations to charitable organizations. For an organization to qualify as a recipient of tax-deductible donations, it must be a church, a government agency, or an organization that has received qualified organization status from the IRS. The organization can tell you if it qualifies for deductible charitable contributions.
When you clean out the closets, empty the garage, or rake out the debris under your child's bed, consider making a list, bagging the stuff up, and taking it to your local charity. Get a receipt that has been signed by a representative of the charity acknowledging that you made a donation, and make sure there is a notation on the receipt that you have received nothing in exchange for your donation. Keep the receipt with your tax records for the year (it's for your records, you don't have to attach it to your tax return), and you can qualify for a tax deduction.
Many charitable organizations accept donations of used clothing, sports gear, household apparel, cars, computers, and more. But how do you know how much you can deduct for your generous donation?
The IRS has set out some rules for valuing used items that you donate to charities, but they stay away from coming right out and saying that your stretched-out, "Best Mom in the World" sweatshirt is worth 4 bucks or your tattered barbecue apron is worth $2.50.
In fact, the IRS very clearly leaves it up to you to fend for yourself in the world of second-hand pricing. Take a look at IRS Publication 561, "Determining the Value of Donated Property," where you might expect to find a nice price list for valuing your old coats and army fatigues. Instead, the IRS states that the value of your used goods is "the price that would be agreed upon between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts." Why can't they just say, "Blue jeans, $5, tennis shoes, $3?"
One reason, according to Marianne Markovich, IRS tax law specialist, has to do with the quality and condition of the items. Clothing with Michael Jordan labels may be worth much more than the same type of apparel without the star's name. Markovich suggests valuing items based on what they would sell for at a garage sale, keeping in mind the quality of the items. "Something in good condition might get $1.50 at a garage sale, but if it's rag-bag, you're probably looking at a quarter."
The price tag you may want to place on your treasures might not be the going rate. "I was at a sale where the people had good clothes out at really reasonable prices," recalled Markovich, "but they didn't sell anything. After 3:00 they put out a discount sign and marked down the prices. They sold the stuff by the bagful."
What if you're not tuned into the garage sale circuit? Pay a visit to your local Goodwill store, Salvation Army store, or similar shop geared toward selling used items and using the proceeds for charitable endeavors. You can get a sense of the prices charged for items similar to yours, and calculate your deduction in that way. These organizations stay away from publishing standard price lists, due to the fact that prices can vary depending on the quality of the goods, according to Cindy Graham, Vice President of Marketing for Goodwill Industries of Central Indiana. Prices also vary geographically across the country.
In Indiana, standard prices for items at Goodwill stores include $3.49 for a pair of men's slacks, 3.99 for women's shoes and dresses, $3.99 for children's jeans, and $.99 for most t-shirts. Designer clothes or clothes of exceptionally high quality will be priced higher. "Ripped and stained clothes and dirty toys won't go out on the floor," said Graham. "Anywhere from half to three-quarters of the items we receive go to the stores. The rest we bundle and sell for salvage."
And what does Goodwill do with the proceeds from the sale of your rejects? "That's my favorite part," said Graham. "The retail dollars help support training and job evaluation programs. Last year we put over 3,000 people to work because of that effort. These are people who weren't working, some of them weren't even looking. We provided service to over 35,000 people in the form of assessment and job training." That would explain why your unneeded clothing and other items have a value, just like cash donations, to charitable organizations.
So the next time you get ready to clear out clutter, don't just pitch what you don't need. Give your unwanted items to an organization that can turn them into cash and put the cash to work to help others. And the IRS will help you out with a tax deduction.
copyright © 2000 Gail Perry - Fun with Taxes