As the year comes to an end you may find yourself looking in the closet, attic, or garage for items that can be donated and taken as a tax deduction. Below are a few things you may want to keep in mind when donating household items, cash, and volunteered time. Donations of other items such as artwork, securities, real estate, etc. have different guidelines. Please consult your tax advisor with questions.
Who can I donate to?
While giving clothing directly to someone in need would be a quick and efficient way to give, unfortunately it would not qualify as a charitable deduction for tax purposes. These items must be donated to a qualified charitable organization (QCO) approved by the IRS to operate as such. You can check if an organization is a QCO at this site.
What can I deduct?
Deductible contributions are those made to a QCO and are intended to be used by said organization towards achieving their core objective. The organization may choose to use the item for their operations or liquidate the item for cash. Either way, you should be entitled to a deduction. Donating an item to a qualified organization knowing someone within the organization is planning to set aside the item for personal use does not qualify as a charitable deduction.
How much can I deduct?
The amount that can be deducted on a taxpayer's return is equal to the fair market value (FMV) of the item. If the donation is cash, then it's simple – the FMV is the amount of cash given. For newly purchased items, the FMV is the amount that was paid. However, if the items are used, it can be difficult to determine the FMV as there is no fixed formula or method for determining FMV of used household items. However Goodwill Industries International has published a valuation guide of household items. Please note: deductions for charitable contributions generally cannot exceed 50% of adjusted gross income (AGI) and in some cases, 20% and 30% limitations may apply. However, contributions in excess of AGI limits can be carried forward for 5 years.
How about contributions with benefits?
Let's say at donor attends an evening fundraiser for a qualified organization that includes a dinner for a cost of $100 per person. Since a benefit (dinner) was received from the organization, the amount that can be deducted would be $100 minus the value of the meal. Organizations usually makes this easy by informing the donor of the amount considered to be deductible for tax purposes. However, if you receive a small token item for participating in a fundraiser, such as a lapel pin or bumper sticker, the contribution does not have to be reduced.
Can I deduct the time I spend volunteering?
Even though we all know time is money, the IRS will not allow a deduction for time spent volunteering. However, a deduction of $0.14 per mile is allowed for miles traveled while volunteering for a charity.
What about out-of-pocket expenses while I'm volunteering?
Certain expense paid in connection with volunteering may be deductible. The key question to ask yourself is "Can I use this item for other, non-charitable activities?" For example, if a volunteer is required to wear a specific type of uniform (i.e. nurse's scrubs) and they are not able to use the uniform afterwards, the cost of the uniform can be deducted. However, if a volunteer purchases a commonly used tool to help with a charitable construction project, they should think twice before deducting the cost of the tool (unless you donate the tool) since it has utility beyond the charitable project. In addition, expenses such as childcare or meals (if local) while volunteering are also not deductible.
Again, these are guidelines and should not be interpreted as written advice. Please consult your tax advisor if you have any questions regarding charitable giving. For a more in-depth explanation of deducting charitable contributions on your tax return, see the IRS guidance here.
Brad Williamson, CPA
Senior Staff Accountant