CUT TAX RETURNS WITH NONCASH DONATIONS

Posted on September 10, 2014 by in Government, Planning, Strategy, Taxes

CUT TAX RETURNS WITH NONCASH DONATIONS

 

By: Denise Frazier, CPA

 

You see.  You buy.  You wear twice and immediately fall out of love.  What’s to become of those barely-worn Stuart Weitzman heels?  There is value in those once-fabulous fashion pieces that are out of season, no longer fit, or just don’t do it for you anymore.  How much are those heels worth?  More than you think.

 

Properly valued noncash donations are often an overlooked source of deductions on tax returns and could shave hundreds off your tax bill.  Many taxpayers don’t fully understand what documentation is needed for noncash donations or think the process takes too much effort.   If you plan to itemize your deductions this year, follow these suggestions to make noncash donations a painless and worthwhile endeavor.

 

HUNT & GATHER

Fall months are a great time to clean out closets and cabinets. Take a look around the house and collect unused items, or those things the family no longer needs.  Everything from furniture to that bread maker collecting dust and children’s sporting equipment, toys and clothing they have outgrown all have value. It goes without saying that items must be in working condition, contain all of their pieces and parts, and be free of rips and stains.

 

TAG & BAG

Meeting record keeping requirements of charitable contributions is simple.  As each item is placed in boxes or bags for transport, use a spreadsheet to log the donated item, quantity and brief description.  Is it a man’s suit, a child’s winter coat, a lady’s leather handbag?  Take photographs of high-value items such as electronics, furniture and appliances.  In addition to the description of each item, market value must be indicated.  Well-known charitable organizations such as Goodwill and the Salvation Army have thrift shop value guides on their websites which provide assistance when calculating thrift shop value.  As an example, an overcoat could fetch $60. Unlike thrift shop value, fair market value is the price the item would sell for at a garage sale or on eBay.  A conservative rule of thumb for determining fair market value is approximately one third of the original price.  Be sure to keep this donated item log in your files.

 

DROP & GO

Items have been gathered, recorded with a brief description, packed and are now ready for drop off to a qualified, non-profit charitable organizations. Churches, educational organizations such as the Boy or Girl Scouts, the United Way or war veterans’ organizations are some examples of qualified organizations. Most charitable groups typically provide a written receipt for donations. The receipt should indicate the name and address of the organization and the date of the donation.   What the receipt won’t include is a list of the items or their estimated fair market value.  Take the charitable donation receipt and simply attach it to the donated item log you created and file these away with tax records.

 

If total noncash deductions for the year is more than $500, Form 8283, Noncash Charitable Donations, must be filed with the tax return.  There is no limit when making noncash contributions but proper documentation of donated goods are an essential part of smart tax keeping and staying off the IRS radar.

Frazier joined Cooper CPA Group in 2005 and has more than 18 years of general accounting experience with a focus on small and mid-sized businesses. www.CooperCPAGroup.com