Tax Deduction Available for Items Donated to Charity
One of the more creative things you can do with tax return preparation is donate household items to charity. Donating your used belongings is a total feel-good procedure.
First, you feel good about emptying your closets and drawers of items you no longer use - the house is cleaner and less cluttered. Also, you feel good about providing useful items to needy people. And finally, you feel good about the fact that you are reducing your income taxes.
Your donated items qualify for a tax deduction if you follow a few simple rules.
- You must be able to itemize your deductions on Schedule A of your tax return in order to get the tax benefit of donating items to charity. Don’t let the fact that you can't itemize stop you from donating used items to charity. If you don't itemize your deductions, you can still clean your closets and donate to charity - you just won't see a tax benefit. And the argument, "I would clean my house if only I could itemize my deductions," doesn't carry much weight with friends and relatives who won't visit because your house is a mess.
- To qualify for a tax deduction, you must donate the items to a charity that is recognized as such by the IRS. Typically the group to which you make the donation will either re-sell the items and give the proceeds to programs for needy people, or they will donate the items directly to the needy.
Places like the Salvation Army, Goodwill, and various veterans' groups are obvious choices and these groups are often willing to come to your door to pick up donated items. Churches, schools, libraries, and hospitals are other good outlets for your donations.
If you are uncertain if your donation to a particular group qualifies as tax deductible, just ask. Members of the group will know if the group is able to authorize tax deductions.
- Document your donated items. I know it's a pain, but take the time to make a list of all the items you donate. You don’t have to be terribly precise: "One red shirt, one blue shirt, two yellow shirts," is a bit of overkill when "Four shirts" will do. But "Three bags full" is not specific enough, unless you're writing nursery rhymes.
- Get a signed receipt from the charitable organization to which you donate. The receipt should include the name and address of the organization, the date of the donation, a general description of the items donated (here's where "three bags full" is an appropriate description, as is "clothing and books," "four boxes of household items," and so on). Also, the receipt should contain a statement that you received nothing in exchange for your donation.
The IRS requires that you obtain a receipt if the value of the items you donate is $250 or more. Even if the value is less than $250, it still is wise to keep a receipt for your records. The receipt and your list of items stay with you - they do not get attached to your tax return.
- The final step in the donation process is valuing your donation. Figure out how much the donation is worth so you'll know how much you can take as a tax deduction. Used items are rarely worth as much as you expect. Cast off items face a heavy markdown in the resale market. Even items you purchased new and never used are going to be marked down to resale prices in a second-hand store. Your donation value is the price the items will fetch in the resale market.
Garage sale prices are a fair indication of the amount you can deduct. Visit resale shops like those run by the Salvation Army and other groups to get a good idea of the worth of your items. There are geographic differences when it comes to pricing items for resale. Second-hand shops in larger metropolitan areas may charge more for items than those in rural areas. Also the quality of your item should be considered when making a valuation. A threadbare sweater will be worth far less than a newer-looking fluffy sweater. Pants with a tear will be out-priced by those that are intact.
You can also use the Salvation Army's Donation Valuation Table as a good guide for valuing your used items.
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.