Each year, during “tax season”, I will have clients provide me with lists of items that they have donated to their favorite charity. It makes sense right? Out with the old and in with the new. Items in your household or wardrobe that you no longer need or maybe doesn’t fit quite right any more can find a new home or body size. It’s perfect, your junk is someone else’s treasure. And, instead of holding the dreaded “Garage Sale”, you receive an Itemized Deduction on your income taxes from Uncle Sam. Uncle Sam is such a good guy, isn’t he? But wait a minute! Your favorite Uncle has rules you must follow if you are going to turn these “treasures” into a deduction on your income tax return.
The following summary is meant to assist you in preparing the “treasure listing” that you provide me or your tax professional to ensure your deduction is used. Keep in mind that all cash and non-cash charitable contributions must be substantiated in order to be deductible.
- Name and Address of the Charity – make sure that you provide this information when organizing your tax information. Often the organization will provide you with a receipt that contains this information. If your total non-cash contributions exceed $500, a form 8283 must be attached to your return. This form requires this information for the donee organization.
- A Description of the property being donated – typically, the recipient of these goods will provide you with a form or receipt that provides space for describing the property. Be sure to keep a good list of what you donated. A description like, “Three garbage bags of clothing” will likely not fly with the IRS in an audit. Be sure to list the items separately. The form 8283 doesn’t require that each item is listed separately, but your records need to clearly substantiate the deduction. Also, keep in mind, that household items that you donate must be “in good used condition or better”. Most tax professionals now believe that used clothing is not “in good used condition or better” and no longer qualifies for a non-cash charitable donation deduction. So, if you are going to donate clothing and you wish to take a deduction, you should be able to verify that it meets this criteria.
- Dates, Costs, and Fair Market Value – your records should list the date you donated the property to the organization and the date you originally acquired the property. Each item donated should contain the original cost of the item (or adjusted basis) as well as the fair market value of the item. The method used for determining “fair market value” may also be required, if you need to file a form 8283. To obtain a value of your items, I would suggest that you use a donation calculator, like the one found here at Goodwill Industries of West Michigan to substantiate your deduction even if you donate the items to another charity.
- Qualified 501 (c) (3) Charitable Organization – whether you donate cash or non-cash, your contribution must be given to a qualified charity to receive a deduction. To make sure that you are donating to a charity that will qualify, look the charity up on the IRS website that allows you to search for the organization. It really works quite well – click here to go to the IRS webpage and search for the exempt organizations that are eligible to receive tax-deductible contributions.
Substantiating your non-cash charitable contributions at the time you make the donation will assist you in taking an appropriate donation and receiving a deduction. Using the steps above and the two websites referenced will help make your homework easy!
Disclaimer/Disclosure – the above summary does not constitute specific tax advice. The reader should be certain to review their personal tax situation with their own tax professional. Any US tax advice included in this written or electronic communication was not intended or written to be used, nor can it be used by a taxpayer, for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.