Personal Finance Friday - Donating Your Stuff
My wife and I were talking about this subject and it struck me, hey this could make a good post!
So as you probably know, the IRS through their benevolence (they were probably forced to by congress) allows you to deduct donations from your income. There are a lot of rules around this of course. But there are a lot of misconceptions as well.
For one, you don't really get a benefit if you use the standard deduction when you do your taxes. Back a while ago they let you deduct previous charitable deductions once you started itemizing your expense, but I'm pretty sure they got rid of that rule, which is a shame. So if you use the standard deduction, and your other deductions like your mortgage interest and state and RE taxes don't even come close to the standard deduction ($12,000 for individuals, $24,000 for married couples) than you can stop here :)
But what if you do give a lot and you do itemize your deduction? I wanted to talk about one small aspect of donations, when you physically donate your stuff to a charity like the Goodwill or a thrift store. There are a lot of popular misconceptions out there, some say you can't donate more than $500 of stuff to charities... not true. Others think you can just drop stuff off and then write off a number you make up, you can but it might not be a good idea.
There are a couple of levels here, if you donate stuff and you think its worth less than $500, then you can just claim the approximate amount and be done. If you donate more than $500 of stuff then you need to fill out a form called 8283. This form is just a summary of your donations: who they were to, what they were, how much they were worth, and their original cost. It's more work but in the end could be worth a lot of money back on your taxes. The next level up is if you donate something worth $5000 or more, that requires an appraisal and some other forms, given that is rare, I'll skip that.
So here is a real world example... (side note: my CPA, me as a CPA, and my friend at work who is a CPA have all looked at this and think is probably okay. But you should always do your own checking of course.) What we do is gather all the stuff we are going to donate into a pile for a few months. Then when we are ready to take it in, I literally lay it all out in general groupings, take some photos of it, write down everything (i.e. 23 kid's t-shirts, 4 pair of jeans, 11 baby onesies, etc etc) and then pack it up and take it in. I personally like taking it to the Veteran's thrift store because they will take clothes and other stuff, and always will give you a general receipt. Some places have rules about what they will take and how they will take it. I then write a general description of what was donated, that corresponds to the pictures. I scan it and have it ready for my taxes for the year. Eventually I'll go to it https://itsdeductibleonline.intuit.com/ and look up the values of all the items we donated, and have that ready for my taxes as well. Put it all together and you have a pretty solid case to the IRS.
So this all takes a bit of time, I'd say a couple hours for each load we donate. It is very annoying, but in the middle of the process when I'm thinking to myself, "Why am I doing this?!" I remember that each of our loads averages about $1000 - $1500 of a deduction!!! That is hundreds of dollars of tax savings back in my pocket. I'm basically getting paid like $100 - $150 an hour to do that work, not bad! You may be thinking, "how is that possible? that's a lot of stuff!" Honestly, it is crazy the amount of stuff that passes through this house. Each load we give away has 10's and 10's of pieces of clothing, and we aren't really people who spend a ton of money on clothing, it's just a slow accumulation which is not hard to do with 4 growing kids. I remember the first time someone told me I should be doing this, and they said, "ya we get about $5000 to $6000 per year to write off", I was like "WHAT?!" they must be some kind of weirdos, but no its not hard to do, and when you count up all the stuff you will be amazed at how much you are getting rid of.
So what's the down side? Well, the IRS is always a little fickle. I've done my best to document what I've given, and have some proof that I actually gave it, but I don't get an itemized receipt from the store, that would be frankly ridiculous, but I'm not sure in a an audit if they would make a big issue of that or not. So I comfort myself with these two thoughts, first I'm doing it the best I can and worse case scenario they say, "No that's not enough you owe those taxes!". So, I need to pay the IRS some money, it's certainly not enough to ruin me, even if there are penalties and interest. I'd be upset but the processes in general upsets me so whats new? :) Also the IRS can only go back 3 years, unless you are committing some kind of fraud, so the risk is minimal.
I could go on a big long speech on how living in a country where you don't always know what the tax rules are and how they will be applied, is very bad for our future, but I won't :) All you can do is your best with this stuff, and make sure you are being efficient with your money!