Broker Check

Keep a Record of Goods Donations

Special to the Herald

"Hey, honey," my wife said to me as I was leaving for the gym.

"Hmm," I thought to myself. "She must want something."

"Why don't you take those boxes of clothes, toys, and that old computer to Goodwill? And, Jim, remember to get a receipt for our taxes."

Ten minutes later I pull into Goodwill at Cortez Road and 51st. A tired-looking Goodwill guy grabs our family "treasures" and starts to slam the passenger door.

"Excuse me," I pipe-up. "Receipt?"

Goodwill guy nods, and then he gives me a blank receipt -- one that doesn't list any items or values. The receipt only shows Goodwill's address and telephone number.

I know what you're thinking. Why not just pull a number out of thin air to obtain a big income tax deduction? No, the IRS won't be happy.

Non-cash charitable contributions are now one the greatest audit triggers for an IRS audit. The IRS believes that if your stuff was "really" so fabulous, you wouldn't be giving it away.

The IRS is fed up up with people donating household goods and clothing, that are nearly worthless, and valuing them like new. Anything you wouldn't give to a friend, the IRS believes, probably shouldn't be donated, and definitely not deducted.

Not surprisingly the IRS is tightening rules regarding non cash charitable contributions. Too often uninformed people mistakenly try to deduct the actual cost of things like 5-year-old Dell desktops and well-worn dresses bought on sale at Macy's.

Remember you can only write-off the lower of cost or fair market value of what an item is worth. You can determine fair market value for donations less than $5,000, yourself. Consider an item's original cost or selling prices, comparable item sales, replacement costs, and an expert opinion. At this level, appraisals aren't required.

Substantiating clothing and household Items usually requires a description of the property donated, date acquired, cost or other basis, and fair market value. You also need to attest that each item is in "good used or better condition." Appliances and electronics donated must be in good working condition, too.

One part of being a financial adviser is that you have to wear a lot of neckties. Unfortunately, in my efforts to look professional, I have stained more than a few ties with spaghetti, mustard and coffee. And, just my luck, these stains didn't come out with dry-cleaning, either.

The IRS now believes the value of worn-out or obsolete items, like my neckties, is much lower than the amount paid. A necktie, I paid $30 for at JC Penney's two years ago is worth about $3 today, not $30. So, assuming a 20 percent tax bracket, my "amazing" JC Penny tie saves me only 60 cents in tax, not $6.

Now let's go back to the stuff my wife asked me to drop-off at the Cortez Road Goodwill. Before I even left home, we should have listed, for example, two undershorts, $2, three pairs of women's shoes, $20, Monopoly game, $3, and Dell computer system, $150, with authentic values. Values can be obtained at the IRS, Goodwill and Salvation Army web sites.

When it comes to non-cash charitable deductions, don't be too piggy, piggy. Instead take the time to document your deductions. Start by considering:

If the amount is less than $250, the acquisition date and original cost is not required.

Amounts greater than $500 require you to complete IRS form 8283, non-cash charitable contributions form.

Use Goodwill's and Salvation Army's standard "value list" to determine your donated clothing and household items.

Make sure organization tests household items as to working condition.

Use photos of clothing and household items to prove condition.

Fill out form 8283 for contributions more that $500, and if over $5,000, you need an appraisal, too.

Jim Germer is a Bradenton CPA and financial adviser at Cetera Financial Specialists, LLC, member FINRA/SIPC.