Tax Change for Donations Sparks Goodwill Reminder | AccountingWEB

Tax Change for Donations Sparks Goodwill Reminder

Goodwill Industries is reminding tax preparers that donations of used clothing and household items qualify as tax deductions as long as they are in good condition.

“It used to be that people would keep general records and write something like, ’four boxes of clothing’ on a Goodwill receipt,” says George W. Kessinger, President and CEO of Goodwill Industries International. “Now you must make sure the items are in good condition, and we recommend keeping a specific list of items—but the donations are tax deductible all the same.”

The Pension Protection Act of 2006 specified that donated items must be in “good used condition or better,” but did not define what that means. Goodwill says some tax preparers are erroneously telling taxpayers that they can’t claim a tax deduction anymore.

According to the IRS, non-cash contributions to charities are a big area of abuse, as some taxpayers overvalue the items they give away. Americans donated almost $6 billion dollars worth of clothing alone in 2003, the first year the IRS started tracking non-cash donations reported on Form 8283. In fact, abuse of charitable deductions was listed on its Dirty Dozen Tax Scams. (Read the IRS press release at http://www.irs.gov/newsroom/article/0,,id=167983,00.html)

How can your clients prove that they donated “good condition” items to charity?

MarketWatch offered two suggestions: Take photographs or film all the items. Also, create your own form that says, "These clothing and household items are in good condition, in compliance with IRS rules.” Ask the person receiving the items to sign and date the form.

Another thing to remember: Anyone donating a household item worth more than $500 needs to get a qualified appraisal for it, but only if it's not in good used condition or better, the IRS says. Such items include furniture, electronics, appliances and furnishings.

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