Yesterday, my wife and I were performing a spring cleaning of our closet. The closet was overflowing with clothes and it was time to purge some of the items that were no longer being worn. For items in decent condition, we set them aside to be dropped in a charity bin for used clothes. The remainder went in the trash.
After about an hour of purging, I became reunited with an old friend from my youth; my Van Halen concert t-shirt from 1984. My wife immediately told me to trash it. I refused, but after some severe arm twisting, I relented. My only condition was that it had to go to the charity bin. To trash it would be comparable to throwing away a Picasso. Plus, I argued to her, the t-shirt was worth at least $25 as a collector’s item, and we may be able to get a tax deduction for it. She laughed and kept on working. Subsequently, she uncovered one of her old Bon Jovi concert t-shirts. We had the same conversation in reverse order.
After years of abuse by tax payers, the IRS is getting serious about charitable deductions. Generally, you are allowed to deduct from your income contributions of cash or property to a qualifying charity. If you donate property, you generally can deduct the fair market value of the property at the time you donate it. However, determining the fair market value is not always easy. My wife and I clearly had a difference of opinion on the value of my Van Halen shirt. So here are some of the rules for how much you can deduct for your charitable contribution(s):
Cash donations –You can deduct the full value of cash donations to a qualifying charity up to 50% of your adjusted gross income. However, to take the deduction you need a copy of the bank record on hand (cancelled check, credit card statement, etc.) or obtain a receipt from the charitable organization
Clothing items - You cannot take a deduction unless the item is in good used condition or better. The amount of the deduction is its fair value based on comparable sales of used clothes at thrift stores. I will definitely need to get some legitimate support from the thrift store to ensure the fair value of my Van Halen shirt is worth $25.
Household items – You can also receive a deduction for the fair market value of donations of furniture and other household items. To support your determination of fair market value, you should include photographs, cancelled checks, comparable sales data, and support from the charity.
Cars – The fair value of a car given to charity can be taken as a deduction. To determine the fair value, you can use the “blue book” value of the vehicle for a private party sale. Appropriate adjustments must be made for the working condition of the vehicle, including high mileage, etc. If the car is not running, is missing doors, or is in general disrepair, the fair value will be pretty insignificant.
Boats - The value of a donation of a boat must be supported by an appraisal by a qualifying party.
Contributions which you receive a benefit – This includes things such as bidding on items at a charitable auction. You can receive a deduction for the difference between what you paid and the fair value of the benefit you received. For example, if you paid $500 for a round of golf that was worth $100. You can take a $400 deduction.
Volunteering your time – You can not take a deduction for the value of time spent volunteering for a charitable organization.
Volunteer miles - If you have to drive to the location where you perform your volunteer work, you can deduct 14 cents for every mile you drive.
Direct costs incurred while volunteering – Out of pocket expenses incurred while volunteering are generally deductible. These may include things such as air or rail travel, lodging, etc.
This list represents the most popular charitable deductions, but is by no means comprehensive. Furthermore, you should always attempt to get written documentation from the charity as proof of the donation. For more information, check out Publication 526 at the IRS’ website or email your question on the right side of this webpage.
P.S. The first person to donate $25 to the Catholic Archdiocese of Boston or any other worthy cause can receive one slightly worn Van Halen concert t-shirt.
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