One easy way to trim your tax bill is to donate household items such as used clothes, furniture, and appliances to your favorite charities. These noncash donations can help reduce your tax bill as long as you itemize your deductions.
The Internal Revenue Service (IRS) requires donated household goods to be in a “good” used condition or better to qualify for deductibility. There is an exception to this general rule. You can take a deduction for a contribution of an item of clothing or a household item that is not in good condition or better if you deduct more than $500 for it and include a qualified appraisal of it with your tax return. For details, go to www.irs.gov and review publication 526.
Note that the rules above are only for common “household” goods such as furniture, clothes, and electronics. The guidelines to the donations of food, paintings, antiques and works of art, jewelry and used cars and boats are significantly different. The guidelines can be reviewed in IRS publications 526 and 561.
The hardest task in this process, however, is valuing these donations. The IRS says that the fair market value for the donated items are often radically less than the original cost. Thrift shop values are typically applied to donated items at five to ten percent of their original cost. It is important to keep detailed records such as lists of items, photos, videos, and acknowledgements from charities of the donated items.
The process of claiming deductions for donated items is not for everyone. The one big decision is whether you use the standard deduction method or the itemized deduction method when filing your income taxes. The preparation of your yearly tax return involves adding up all the income and gains for the year, and then deducting expenses and losses to arrive at your taxable income. The standard deduction method is a set amount while the itemized deduction method requires you to manually report each deduction that you qualify for. The itemizing method is the best choice when the sum of all itemized deductions exceed the standard deduction and results in a lower net income tax.
Taxpayers also feel that the return from this process isn’t worth the time and effort invested in it. When evaluating the values of the donated items, you have to gather all your unwanted items and organize them, make detailed records of the donated items, evaluate the fair market price for each item, donate the items, and then you have to claim the value of your donations as the charitable deduction on your tax return. Because of the lengthy process, it is often advisable to only go through this process once every three to four years, before a big move, right after a death, or when moving to a nursing home.
Tags: Taxes