Doing good: getting that warm, fuzzy feeling; helping your fellow humans. Who doesn’t love to do good?
One way to help out is to donate stuff, which many of us come to have in excess at some point. Whether it’s an old couch or an outdated TV that you no longer want, it’s usually better to give it to someone in need rather than throw it out. More smiles, less waste.
But did you know that you can reduce your taxes by giving away things? Indeed, you can usually take the charitable donation deduction come April when you made those gifts the prior calendar year (provided you itemize deductions). Here’s how it usually works.
They’ll Pick It Up
A few years back, my wife and I moved from Puerto Rico to Miami. Since that meant moving from an island to a continent, the only real way to transfer our stuff was by boat. No U-Haul, no borrowing someone’s pickup truck and taking to the road. Because of the cost and logistics of shipping our life’s possessions by sea, we had to be very selective in what we sent. That meant that we were left with lots of stuff that we could not take. What to do?
Some things (like our liquor stocks) we gave to friends (I hope they enjoyed it; it was some good booze). Other stuff we gave to our parents. For the rest, we did some research into donations, since it was a good thing to do, and we had heard about the tax write-offs.
So here’s what we did, and what we found out: organizations like the Salvation Army will come to your house with a truck and pick up donations for free, as long as it’s a relatively big amount of stuff. All you have to do is call them a couple of weeks beforehand to coordinate.
You Appraise the Goods
Obviously, in order to deduct the value of the goods from your taxable income, you have to figure out what that value is. The Salvation Army will not do that for you. It’s up to you to go through each item and assign it a value, making sure to be fair.
Normally, a used item in good condition -you can’t really deduct stuff in bad condition, which the Salvation Army will usually not even accept- will be worth something like 15% to 33% of the original purchase price. Per IRS Publication 561, the value of the charitable donation deduction is “fair market value”, which is “the price that property would sell for on the open market”. Um, okay.
More usefully, the Salvation Army actually has a value guide that includes suggested value ranges for specific stuff; Goodwill has the same. Take a few examples (from the Salvation Army guide, which seems more comprehensive):
- Men’s shoes: $3.50-$25
- Sofa: $35-$200
- TV: $75-$225
Get Your Receipt
Once you donate the goods, make sure to get a receipt from the organization accepting the stuff, and to keep it in your records (I suggest you scan it to your computer). The receipt will list the items given, and the value assigned.
Take The Charitable Donation Deduction!
That’s pretty much it. When April comes around, take the tax deductions on donated goods when filling our your returns. In my case, we saved well over $500 in taxes, simply because we gave away so much stuff that we could not ship!
Disclaimer: This is general knowledge, not professional advice. Talk to a tax professional if you need guidance for your specific situation.