June 19, 2017
One of the most overlooked and underutilized tax deductions is the deduction for noncash donations. These noncash donations occur when you donate clothing, household items and automobiles to charitable organizations such as Goodwill, Salvation Army and Purple Heart.
Often as sizes change, spring cleaning is taking place, or when moving, individuals have working items in good condition that they do not want to throw away. People often donate these items at the charitable organization of their choice in exchange for a donation receipt. The receipt will provide the date of the donation, the donation location and the number of boxes or bags donated.
A number of these charitable organizations even have regular routes and will pick up the bags and boxes that you have prepared for donation on a scheduled date. You need to make sure that you receive the same type of written receipt from the organization acknowledging this donation that you maintain with your tax records.
However, in order to take advantage of this tax deduction an individual will need to utilize some discipline in the area of record keeping, as you are responsible for providing an accounting for the items donated.
Rather than just telling your tax preparer that you donated five bags of miscellaneous items there are a number of things that you need to be aware of.
First, for clothing and household items the items must be in good used condition or better.
Second, you should prepare a list of the items donated with the corresponding used value.
There are several good websites available to help you determine the value of these items including www.satruck.org/donation-value-guide.
The IRS allows you to deduct the "fair market value" of any noncash charitable contribution. The fair market value of an item is the price you would expect to pay if you bought or sold the item in its present condition.
The fair market value is not the price you paid when you acquired the item.
The IRS is well aware that some taxpayers do not maintain this necessary documentation and can eliminate the deduction under audit if this listing is not provided.
The fair market value of used household items and clothing is usually much lower than when new. A good measure of value might be the price the buyers of these used items usually pay in consignment or thrift shops.
In addition, when the noncash charitable contribution exceeds $500 then a separate form must be prepared (Form 8283) that requires additional disclosure items including a description of the donated items, the name and address of the donor organization and the method used to determine the deduction value.
Examples of how you determined the fair market value include appraisal, thrift shop value, catalog or comparable sales.
The IRS can and will disallow some or all of the deduction in this area if you do not provide the necessary receipts from the organizations where the donations have been made and the amounts claimed are documented and reasonable.
Phrases such as "take the most I can take" or "whatever I am allowed" make your tax preparer cringe. You are allowed to deduct the appropriately documented fair market value of the items you have donated.
You want your claimed deductions to be able to stand up under audit.
You do not want to play the audit lottery and hope that you do not get audited.
So, don't ignore this valuable tax deduction and spend a little time preparing the necessary accounting documentation when making a noncash charitable contribution so that you will be able to maximize the deduction and be prepared if you are audited in the future.
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