It’s tax time again, and among your tax documents, you might have a few Goodwill slips and maybe even a list of items you gave them. Now what?
As tax professionals working in the public accounting arena for close to twenty years, I have prepared thousands of Individual Income Tax Returns (Form 1040). Each year there are a few areas of documentation that continue to be an issue for a majority of taxpayers. For instance, it is the rare small business owner that diligently keeps an accurate log of their business miles for the entire year, despite their tax preparers urgings.
Another area that grieves many taxpayers relates to Non-Cash Charitable Contributions. These are primarily made up of those bags of clothes and small household items contributed to places such as Goodwill and the Salvation Army.
The Black Bags in Exchange for the Little Slip of Paper
A majority of taxpayers fill black garbage bags or moving boxes full of clothes, books, small kitchen appliances and unwanted knick knacks and drop them off at their thrift store of choice without even a detailed list of what they have donated. They receive a slip from the store with the name and address of the store and the current date. The more diligent taxpayer will take time to list out the items donated and attach the list to the slip they receive. These slips are then collected until tax time.
How Much is This Slip Worth?
When tax time rolls around the taxpayer is now forced to determine the value of the items they have contributed. Since most taxpayers cannot even remember what they have contributed, they will generally come up with a very conservative number which has no real basis in their actual contribution. Many taxpayers elect to contribute just enough to avoid filling out additional tax forms which require additional information from them. Because of this, many taxpayers cheat themselves out of valuable donation deductions and ultimately overpay taxes.
To add insult to injury, they could lose even the understated deduction they have claimed if audited by the Internal Revenue Service (IRS) because they do not have adequate documentation to support it. For these reasons, having adequate records and deducting the proper amount is really in a taxpayer’s best interest.
What Can I Do for 2010?
If you have even a rough list of what you contributed during the year, you should be able to make a fair estimation of the value. If you know you filled a tall kitchen bag with sweaters, for instance, test to see how many sweaters fit in one as a way to estimate the number contributed. To determine the donation value of them, you need to find the “thrift shop value.” I found a nice, concise valuation guide at The Children’s Home at http://www.childrens-home.org/valuationguide.htm (accessed February 15, 2011). The high and low range allows you to adjust for the condition of the items you donated. Make sure to write out how you determined your deduction amount and attach your calculation to the slip from the organization.
If you do not have a slip from the organization, my recommendation would have to be not to take the deduction. That will be up to you and your tax preparer to determine, but be aware that if your return were to come under examination by the IRS, you are very likely to have the deduction disallowed.
What Should I Do for 2011 Forward?
We all have busy lives, and no one is perfect. I am not going to suggest that you write out every item, note the condition of each item, and look up its thrift shop value before dropping your donation off. What I suggest is that you make a list of items and how many of each item you are contributing. Consider all of the items to be in fair condition and note only the exceptions, such as an expensive skirt, or a pilled sweater.
After dropping off the items, staple the list to the slip from the charitable organization and lookup values when you get the chance. For most of us that will be when we are working on our taxes the next year. That’s ok. You will have everything you need to do it, and if you don’t want to do it, you will be able to give the information to a tax preparer and have them do it for you.
There are only a few tax deductions that are still sacred: Home Mortgage Interest, Real Estate Taxes, and Charitable Contributions among them. Make the most of your deductions by keeping good records of your Non-Cash Charitable Contributions and don’t be afraid to deduct them!