Come January, many people are ready for a fresh start. Especially after the holiday season, this often means clearing out the clutter to make room for the new: in other words, finally hauling those bags of old clothes sitting in the basement to the Salvation Army, Goodwill, or another charitable organization.
Once you’ve gathered up items you’d like to donate, Charity Navigator’s guide to donating Non-cash Items recommends finding a local charity in order to reduce transportation costs that could ultimately lower the value of your donation: “Look first in your local community to find a charity to support with your non-cash contribution. Call around and ask charities if the accept the kind of items you are looking to donate, and if they don’t, find out if they have any suggestions for a charity that does.”
It’s a good idea to itemize any deductions, both cash and non-cash. However, non-cash contributions require some additional steps in order to calculate the value of goods you’ve donated throughout the year. If the total value of the items you’ve donated is under $500, you simply enter that value on line 17 of the Schedule A form. If you donated more than $500 worth of items, however, you need to fill out the charitable contributions federal deduction tax form, the 8283 form with the title “Noncash Charitable Contributions.”
How do you know what your contributions are worth? Tax preparers won’t value your donated items for free, and it’s easier for you, the owner of the item, to more accurately evaluate the items for their true worth. Resources like The Salvation Army’s Donation Valuation Guide, which help determine the tax-deductible value (approximate) of commonly donated items, can be extremely helpful to use before dropping any donations off. They offer a range of values to reflect age and quality, so it’s up to you to most accurately value the item. Bob Meighan, lead CPA at the American Tax & Financial Center at Turbo Tax, recommends taking photos of your donated items in case the IRS challenges your valuation during an audit. Photos provide you with evidence of the condition of the item at the time of valuation. The more evidence you have to prove that your valuation is accurate, the better.
Many tax advisors recommend that if the non-cash contribution is large, like a piece of artwork or an automobile, you get the item appraised in case of a future audit. The IRS puts this threshold at $5,000, and any items valued at that level or over must complete Section B of Form 8283, which generally requires an appraisal. The $5,000 threshold doesn’t apply only to one-time donations that exceed $5,000. Even if you make multiple, smaller donations of like-kind items (such as clothing) that add up to greater than $5,000 for the year, you will need an appraisal for those items. If the donation is a vehicle, plane, or boat, additional special restrictions apply. Your charitable write-off will generally be limited to the sales proceeds for the charity when the vehicle, plane, or boat is sold, rather than the fair market value. In that case, the item’s true value is less important than what it can be sold for.
Non-cash charitable contributions don’t just apply to items, either: If you perform unpaid volunteer work for a charity, you can deduct expenses. The U.S. Tax Center provides a helpful list of what you can and cannot deduct from the course of your charity work, but a good note is that the most common deduction for charity workers is car expenses. You can deduct mileage (at 14¢ per mile), parking fees, or tolls incurred while doing work for a charitable organization. If you do so, be sure to keep track of the mileage using a log such as this.
Finally, many of our clients use a helpful program to assist in the valuation of items and deductions throughout the year, so that you aren’t scrambling come April: It’s Deductible, which is free online. There’s even an app for your smartphone called the ItsDeductible Donation Tracker, which keeps track of your cash, non-cash, and mileage deductions throughout the year. You can export the itemized deductions into a spreadsheet, and email it straight to your tax preparer.
If you have additional questions about how to deduct your non-cash contributions, would like advice on which software to use, or have any other deduction questions, please contact us any time, as we’d be happy to help! You can reach us by phone at 402.391.1065, or contact us on social media via Facebook, Twitter, or LinkedIn.
Erica has more than 20 years of public accounting experience providing comprehensive income tax planning and tax compliance services. She works closely with business and individual clients to successfully manage and minimize their tax liability.Tags: Charity Navigator, non-cash contributions, tax deductions, U.S. Tax Center