Have you ever checked out at a grocery store with only a few items only to find you have a huge bill? It’s easy for things to add up quickly.
If you itemize deductions on your taxes, you might be missing out on saving hundreds of dollars by not itemizing your non-cash contributions. The value of clothing and household goods donated to non-profits can far exceed what you think they might be worth, just like that small cart of groceries at the store.
I’ve had years where we’ve been able to deduct on our taxes over $1,000 of noncash charitable contributions by following the steps in this article.
What is a noncash charitable contribution?
A noncash charitable contribution is stuff you would donate to places like Goodwill or the Salvation Army.
Here are a few examples:
- Household items – Crafts, decor, electronics, kitchen stuff, luggage
- Sports equipment, toys, video games
- Clothing – baby, kids, men’s, and women’s
How much is my stuff worth?
You would be surprised!
The IRS allows you to deduct the Fair Market Value (FMV) of the item, which it defines as ‘the price the property would sell for on the open market.’
If you want the IRS’s take on determining how to value noncash items, see IRS Publication 561, Determining the Value of Donated Property.
However – the IRS document doesn’t give you dollar amounts or even ranges. For example regarding clothing the guide states:
The price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops, is an indication of the value.
Not very helpful.
I have two solutions for you that will allow you to determine easily the FMV of your donated items, so you can save more on your taxes.
If you want a printed book, get the book Deduct It! Deduct It! (affiliate link).
For an online solution use the free TurboTax ItsDeductable
When should I itemize noncash charitable contributions?
If you think you’re noncash contributions for the year exceed $500, you must complete IRS Form 8283, Noncash Charitable Contributions, and attach it to your return. You can find form 8283 Instructions here.
Steps for itemizing noncash charitable contributions
You want to protect yourself if the IRS ever hits you with an audit. Claiming you donated $20,000 worth of clothes, for example, wouldn’t be a smart idea. Follow these steps to prove your deductions are accurate and legit:
1. Document, document, document
- Take pictures of everything you donate
- Keep the pictures in the cloud so you’ll always have them in case of an audit
Tip: If you’re donating 40 pieces of clothing, you don’t have to take 40 pictures. Lay 10–15 items out on your bed or the floor at a time, and take one picture of those items.
2. Collect donations receipts from qualifying organizations.
While it may be more convenient to drop off a bag of clothes in a Salvation Army drop box, you want documented proof you made the donation. Drive to your local Salvation Army or Goodwill store to drop off your donations.
Some charities will come to your house to pick up your stuff if you have large items like appliances and furniture.
Get a receipt from the volunteers/workers who take your donated goods.
The receipt validates you made the donation, but it does not show what you donated or how much.
Driving up and dropping off stuff at my local Goodwill takes about 1-minute. The collection trailer is out in the parking lot. You don’t even have to get out of your car.
3. Determine the value of your donated items
Use Deduct It! Deduct It! to figure out the value of what you donated. Add up all of your donations and record the info on your tax returns. (Remember to get an updated copy for each tax year).
If you prefer an online solution try the free TurboTax ItsDeductable
Let’s say you’re in the 25% tax bracket.
You made some donations during the year, and you decide you don’t want to itemize the donations. You enter $400 as the amount you donated in your tax return, keeping you below the $500 limit itemizing requires.
Your tax savings would be $400 X 25% = $100
It may be you underestimated the FMV of your donated stuff. Remember that shopping cart example we started with – you probably donated more than you think. But unless you itemize, you won’t know.
After itemizing your deductions and finding the FMV using Deduct It, Deduct It or ItsDeductable, you found you donated $800 of stuff.
Your tax savings would be $800 X 25% = $200
That’s an extra $100 in savings, and it probably took 1–2 hours of time taking pictures and looking up each item’s FMV.
Should I do this?
You could have some tax savings if you meet the following conditions:
- You itemize deductions
- You donate stuff to charity (think bags of clothes).
I am not a tax expert – always consult with your tax preparer to make sure you do what’s best for your situation.