21 Aug The best tax deduction system for your thrift shop donations
Note: this is an update from a former blog post of mine from 2006 on my blog called It’s Not About Your Stuff)
A tax donation system that puts a value on your thrift shop donations so you can maximize your deduction? On your computer or iPhone? Free? How cool is that?
Here’s a great resource: a nifty software program you can download and start using right away from the folks who bring you TurboTax called It’s Deductible. I highly recommend it, having used it for myself and with my professional organizing clients. (repeat: it’s free!)
What does ItsDeductible do?
TurboTax® ItsDeductible® provides accurate fair market values for thousands of commonly donated items such as clothing, toys, games, sporting goods, household items, appliances, etc., allowing taxpayers to get the biggest possible deduction for their charitable item donations in compliance with IRS guidelines.
If you make donations to your local thrift store without itemizing them, you can only deduct $500 for miscellaneous donations. If the items are ‘valued’, which is what this software does for you quickly and easily, I believe you can claim up to $5,000.00 in deductions, but please check with your CPA as there are some catches there, especially if you are a business.
Why use ItsDeductible?
You probably have no idea how much your donated items are really worth. Like most people, you just want to get rid of all that unwanted stuff taking up space. What you might not know is that the IRS allows you to deduct the fair market value of those donated items, as long as they are in good or better condition, and that’s where ItsDeductible comes in.
ItsDeductible’s fair market valuation process not only saves time, it can save the average thrift shop donor hundreds of dollars per year in taxes!
How does ItsDeductible work?
- Find and enter your donated items. Select your item from a category list, or type in a word and ItsDeductible will provide a list of item matches.
- Instantly see your tax savings.
- Print reports, and if you use TurboTax, it will import your information right into the proper IRS form (IRS form 8283– for non-cash charitable contributions totaling over $500) to put in with your tax return.
Why is the fair market value of charitable donations important ?
IRS Publications 526 and 561 state that taxpayers are entitled to deduct the “fair market value” of the items they donate to qualifying charities. While millions of people give away bags of clothing and other items to charity, the vast majority miss out on tax savings to which they are legally entitled because they do not know how to determine the fair market value for their item donations. By providing accurate fair market values for thousands of commonly donated items, ItsDeductible enables you to take advantage of the full, legal charitable contribution deduction – and save hundreds of dollars on your taxes.
The amazing thing is, it usually takes less than an hour to get the information into the system, depending on how much you have to donate.
CASE STUDY: Let me give you a real-life example of how I used this program for a client of mine a few years back…
I was called in to help a dear client with her clothes closet, as she had recently lost a lot of weight and wanted to purge the items that no longer fit. We removed about 6-7 bags of high-end, brand name items in excellent condition. Of course, living in L.A. none of the consignment shops wanted to take items that were bigger than a size 2 (This is for real! I went to FIVE different shops! Don’t get me started…) and as her beautiful stylish and in-great-shape clothes were a size 16, that wasn’t going to work.
I used ItsDeductible and no kidding, within about an hour, I had inventoried all her clothes and printed out the information for the IRS form that outlined the value of all her items. I took a photo of her clothing, took the bags to the local thrift shop, where they gladly signed the form and she was able to claim over $2500.00 off her taxes for that year as a charitable contribution. Ironically, by my calculation, that was a far better deal than she would have gotten by merely consigning her clothes. (not to mention that her tax deduction paid for some of my time in helping her sort out her closet!) At a 25% tax bracket, she would have saved $625.00!
Here are a few more tips on handling charitable deductions:
- You must have a receipt from the thrift shop or charitable organization showing the charity name, date, description and value before filing for the deduction.
- The Pension Protection Act of 2006 does not allow a tax deduction for clothing and household items not in good used condition or better.
- A charitable donation is deducted on Schedule A as an itemized deduction.
- Your total itemized deductions must be greater than your standard deduction for your filing status to have any tax benefit.
And here is the important part….it gets a little complicated, but according to TraderStatus.com:
- If the total of non-cash donations for the year is under $500.00, then just the charity name(s) and value needs to be shown on the tax return. (no need to determine value for each item if they are not worth a total of $500+)
- If the total of non-cash donations for the year is over $500 and under $5,000.00 then the full address of the charity and a description on how the current value was determined (for example: independent appraisal, looking at comparable sales, using the thrift shop value or using ItsDeductible)
- If the total of non-cash donations for the year is over $500 and under $5,000.01 and any individual charity receipt is over $500 then additionally for that receipt, more information must be listed: age of the donated property, original cost and how the items were originally acquired.
- Over $5,000 per item or group of related items requires an appraiser to sign IRS form 8283 and the charity also needs to sign the tax return, as well as other requirements.
Please contact your CPA to discuss before making a large donation to make sure all applicable requirements are met.
You can ask questions of the TurboTax Community here: Tax Questions.
I hope this helps!
((¸¸.·´ ..·´ Jessica -:¦:-