Spring cleaning and charitable deductions
It’s that time of year again — spring cleaning! Throw open your windows, shake off the cobwebs and let in some fresh air.
Along with scrubbing down the walls and cleaning away some questionable goo in the mudroom, you’ll probably be tossing out a few things — those items that are too small, too ill-fitting or simply out of date.
Rather than put your old stuff out to the curb (assuming they’re still in good shape), consider donating it to charity. You can do some good and save a few dollars come tax time. Teaching your children about charity at a young age is a great idea too. So get them involved in donating used toys, clothes and other household goods.
Here are a few tips for getting the most value out of your non-cash contributions:
Do a little investigative reporting
The Internal Revenue Service only allows deductions for donations made to qualified charitable organizations. You can confirm the tax exempt status of most charitable organizations on the IRS website; keep in mind that some organizations, like churches, may not be listed so ask the organization for documentation if you’re not sure. You can also check out the credentials — including ratings — of a potential donee/charitable organization before you make a donation using a service like Charity Navigator.
Get a receipt
A lot of folks believe that you have to only keep records if you donate something that’s valuable — but that’s not true. You have to be able to produce a record for all contributions regardless of the amount. The amount and type of property, however, determines how detailed the receipt or record must be. For any contribution of noncash property, regardless of the value, you must get and keep a receipt from the charitable organization showing:
- The name and address of the charitable organization,
- The date and location of the charitable contribution, and
- A reasonably detailed description of the property.
If the organization doesn’t offer you a receipt, ask for one. In most cases, the charitable organization is happy to provide you with a letter or receipt. If you can’t get a letter or receipt because it’s impossible (for example, you drop off your items at one of the Goodwill bins), you should keep sufficient records on your own to substantiate your deduction.
You’ll also need to keep a record that explains the value of the property as of the date of contribution and the condition, along with an explanation of the basis (meaning, generally, what you paid for the item).
If the donation is valued at more than $250 but less than $500, you’ll need to provide a written acknowledgment from the charitable organization that clearly states the description of the property, whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits), along with a description and good faith estimate of the value of any goods or services received. That includes the “complimentary” tote bag, magazine subscription or coffee mug offered to you in exchange for your gift.
If the donation is valued at more than $500 but less than $5,000, you’ll have to provide the same acknowledgment and keep the same records as above but you’ll have to provide more details, including how you got the property (purchase or gift, for example); the date you originally obtained the property and the basis of the property. You’ll report this information on a federal form 8283, Noncash Charitable Contributions.
If the donation is valued at more than $5,000, you’ll have to include all of the information listed above as well as a qualified written appraisal of the donated property. As above, you’ll report the information on a federal form 8283, Noncash Charitable Contributions.
To figure whether your donations meet those thresholds, add up all of the value of similar items during the year. So, for example, if you donate two used cars worth $3,000 each, that puts you over the $5,000 threshold.
Calculate the value of your donation
To determine the actual value of the donations, the IRS generally accepts fair market value. Fair market value is the price that a willing buyer would pay for the item.
For most household items, including furniture and appliances, as well as clothing, the fair market value is not the purchase price.
Let’s face it: Nobody is paying you close to $50 for a pair of used Levi’s, no matter how good they fit. Most of the time, you’ll want to value these items at the “thrift shop cost” or what you’d pay for them if you bought them in the present condition. You should keep documentation to support these values since they’re subjective: Detailed descriptions, photos or original sales receipts can be good evidence.
For more expensive items, like used cars, you can use pricing guides to determine values. Kelley Blue Book, for example, is an industry standard and offers a great start for figuring value. If, however, the values are above $5,000 for donated items, you’ll want to get a written appraisal.
For artwork and other valuables, you generally deduct the fair market value of the items. However, the value of artwork or other valuables that you create is limited to the cost to create the items (usually, the cost of the materials) and not the fair market value. This is true even if you make and sell such items professionally.
Special rules apply to other items such as those considered collectibles, capital assets or those items that were used in your business. Don’t try and wing it: Be sure to consult with a tax professional for more information about how to report these items.
Make sure that the items can be used by the organization
In addition to creating a problem for a charitable organization by donating something that can’t easily be used, your donation may be limited. The value of donated property which has an unrelated use (meaning that it is not related to the purpose of the organization, like giving a marble statue to a music school) is generally limited to your basis (again, meaning your cost) in the item as opposed to the fair market value.
Timing is everything
You deduct your contributions in the year you actually make them, no matter what form of accounting you might use. Contributions made in 2013, for example, will be deducted on your tax year 2013 return, due in 2014.