old stuff can save you big tax dollars
a need to simplify your life? Getting rid of some of that old stuff cluttering
up the house could be just the answer.
And the nice thing about emptying a crammed
closet is that you get two perks for the price of one: More space,
plus potentially hundreds of dollars in tax savings!
probably aware that when you give clothes and household goods to charity, you
can claim a tax deduction. It can be a valuable part of your deduction considerations
if you itemize in your returns. But many people sell themselves way short by undervaluing
their deduction claims.
Whether it's sweaters
or sewing machines, trousers or typewriters, blouses or bicycles, the system is
"Most people take a bunch of old
clothes, throw it into a bag and toss it into a dumpster outside a Goodwill or
Salvation Army building," says Tony Anchukaitis, a CPA, CFP and PFS with
Canby, Maloney & Co. Inc., in Framingham, Mass.
But these people are missing a key ingredient according
to Anchukaitis, "Documentation is key to how much you want to claim for donations.
If you want a big number deduction, keep track of the items and their receipts
-- the more documentation you have, the higher a deduction you can claim."
is the best way to arm yourself against money-grabbing government agents. But
documenting is no easy task.
According to the
Internal Revenue Service, a taxpayer can deduct the fair market value of clothing
and household goods. Fair market value is defined as "the price at which
property would change hands between a willing buyer and a willing seller, neither
having to buy or sell, and both having reasonable knowledge of all the relevant
But the IRS doesn't have an exact
formula or method for you to establish fair market values, so what you write down
is completely subjective. The IRS does, however, offer vague guidelines.
regards to fair market value, Ken Hubenak of the IRS Media Relations office says,
"It's something YOU have to determine. All the main rules are laid out in
561, Determining the Value of Donated Property
526, Charitable Contributions."
former IRS agent who can speak more freely, but asked to remain anonymous, adds,
"a sweater is a sweater. It doesn't matter if it was a $2,000 sweater from
Nieman Marcus or a $20 sweater from Kmart." He adds that most donated clothing
goes to homeless people, so they don't care where the sweater came from.
following these guidelines, you'll be able to receive maximum tax benefits when
donating used clothing and household goods.
your items to a qualified organization -- an organization that has a tax-exempt
status with the IRS. To find out if the organization is qualified:
- Ask the charity if the IRS has qualified it.
the charity's literature to ensure that it is fully recognized by the IRS.
IRS Publication 78, Cumulative
List of Organizations, which lists most qualified
2. Assign a fair market value to
the items that you're donating.
- You can't claim
a fair market value that is more than the original cost of that item.
Ken Pikor of Westerville, Ohio, who is also an "enrolled agent" (someone
who can represent taxpayers before all administrative levels of the IRS) says,
"If you happen to be like my wife who saves all her clothing receipts and
files them, a good rule to follow when valuating used clothing/items, is to use
25 percent of the original purchase price as a guide when determining the donated
3. Keep a detailed record of your
donated items, including:
- The number of items and
the condition they're in.
- The dates you received
or bought the items -- if you don't know exact dates, use approximate dates.
original purchase prices.
- A quick snapshot
or video of the items you're donating -- this will substantiate your contribution
if questions ever arise. Keep the visual record with your tax records.
and dated receipts from the organization receiving your donations -- when Goodwill
asks you, "Do you want a receipt?" say "yes."
Report your charitable deductions on Schedule
A of Form 1040.
5. The value of your charitable
deductions can't be more than 50 percent of your adjusted gross income in any
single year. Donations exceeding the 50 percent limit can be carried forward to
6. When you donate more than $500
worth of goods to charity, you must include Form
8283, Noncash Charitable Contributions, with your tax return.
If your claimed deduction is more than $5,000, you must get an appraisal from
a qualified appraiser and attach an appraisal summary (Section B of Form 8283)
to your tax return. A qualified appraiser is someone authorized to complete Part
III, Declaration of Appraiser, of Section B.
with large donations
You may be thinking that a donation of more than
$5,000 is out of your league. But consider this, if a relative dies or moves into
a nursing home, donating their sheets and towels, furniture and kitchen utensils,
may be the most practical way of cleaning up. The total fair market value of a
large donation like that could easily top $5,000.
best way to deal with an extraordinarily large donation, says Peter Jason Riley,
a CPA in Newburyport, Mass., "is to put a note on your return, claiming that
it's a donation from a deceased person or an estate situation."
note explaining the circumstance may just help you avoid facing that dreaded IRS