If you itemize your tax return, you probably know that you are allowed to deduct the fair market value of items you donate to charity. But what’s the fair market value of say a pair of shoes or a lamp? More than you might think.
The law does not allow the charity to determine the value of an item you donate. The charitable organization gives you a receipt saying that you made the donation. You, the donor, must determine its value. And that’s the problem.
If you overstate the value you risk an audit, penalties and interest. If you underestimate you’ll pay more taxes than you should.
In the process of paring down and purging in anticipation of our big move to Colorado in the spring, my husband and I donated an antique pump organ to a church where it will be used in services and enjoyed by many.
The organ is more than a hundred years old so looking up the new price and depreciating it appropriately was not possible. Our accountant suggested we locate similar antiques that have sold in say the past year and then adjust accordingly for our specific situation. Right. Like there’s a brisk market for antique reed organs down at the mall.
But then I got to thinking …. hmmm … eBay! Sure enough, several pump organs have sold in the past year. I printed the documentation and will attach that to our next tax return to back up the deductible value we assigned to the donation.
But enough about me. Let’s talk about your castoffs. How can you know for sure the “fair market value” of say that sports jacket that’s still in great shape or those kitchen items that are still serviceable? You can use the method I used for my little pump organ. Start searching for actual sales of similar items and then make sure you document, document and then document some more. Or let someone else do that for you.
The donation valuation book, Money for Your Used Clothing, lists values for more than 1,200 specific items of clothing (many by brand name) and household goods commonly donated to charity. And here’s the best part: The values conform to IRS requirements for donated items.
Money for Your Used Clothing is guaranteed. If the IRS ever questions you about the fair market values assigned to your donations by Money for Your Used Clothing, the publisher will respond to the IRS on your behalf with how they got those values ($5,000 limited warranty). If you receive a fine or penalty relating to the values they assigned, the publisher will pay those fines and penalties for you. By using this book thousands of people have avoided overpaying millions of dollars in income taxes!
If you’re like most people you stuff a bunch of old clothes into bags and claim a $100 deduction, receiving maybe a few dollars in tax benefits. All of that could easily have been worth $1,500 or more if you only knew how to value your donations. The values add up quickly.
To take deductions on your 2014 tax return you have until April 15, 2015 to complete the paperwork and file your return (unless you qualify and file for an extension). Don’t let those dates get away from you. Get started today turning your used stuff into cash!
By the way, as a reader of this column, you can get a huge discount on Money for Your Used Clothing (only $20 plus s/h). Supplies are limited.