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Monday, August 13, 2018

Your Guide to Deducting Donated Goods

Recently, we’ve been sharing creative ways to make an impact on any budget. We’ve shared tips for supporting your local homeless shelter and food bank, ideas for starting a school supply drive, suggestions for places to volunteer, and a guide to making the most of your charitable giving budget. Another great way to support local organizations, regardless of your budget, is by donating gently-used goods like books, furniture, and toys, and lightly-worn clothing to be distributed to individuals and families who can use them. 

We can all open our closets right now and pull out 5 or 6 things we’ll never wear again. Or, point to the toys our children have lost interest in or are too old to play with. Why not donate them to a neighbor in need? Plus, these items qualify for a tax deduction when you donate them through a local tax-deductible organization.

Here’s what you need to know about deducting donated goods…

Getting started

Before you drop off bags full of clothing, books, and toys at your local charity determine whether or not the items are useful. First, find out if the organization accepts these items (this will save you a trip if they don’t). Next, take a look at what’s in your “donate” pile. Items should be gently-used and clothing should be lightly-worn. If it’s too dingy or holy, toss it. If the toys are broken, dirty, or missing pieces, don’t donate them. If you believe your items will be helpful to a neighbor in need, keep reading.

What the IRS has to say

To be counted toward your annual tax deduction, donated goods must be given to an IRS-recognized tax-exempt nonprofit organization. The goods must also be in “good used condition or better.” If they are, you may deduct the Fair Market Value of the items.

The IRS definition of Fair Market Value for clothing and household items is what the item could reasonably be resold for. It should take into account quality and depreciation. Photographs, canceled checks, receipts may be used to supplement your valuation.

Note: The IRS allows you take a deduction for an item that isn’t in good used condition or better if you deduct more than $500 for it. They require that you provide a qualified appraisal of your valuation when you file your return.

Determining the Fair Market Value

We think this guide from the Salvation Army is helpful for determining the Fair Market Value of your donated goods. They encourage individuals who donate items to their thrift stores to use these figures to determine their deduction.

Anything else?

Yes! Make sure you get a receipt for your donation from the organization. This will prove that the items were donated to a tax-exempt charity and allow you to claim your deduction.

Got questions? We recommend reaching out to your account or tax preparer. They’ll make sure you have everything you need to donate your goods and get the deduction you deserve.

Donating a car

Thinking about donating your car? Take a look at our tips.

Written by Ashley Post, Communications Manager at Charity Navigator.

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