Forget a Garage Sale: This Trick is so Much Better
By: Kristina Bolhouse, CPA/PFS, CFP®
With the heat of summer, sometimes it’s easier to clean inside than work outdoors. It’s tempting to say, “Someday we will have a garage sale” and stick old clothes and other items in a corner of the garage. A much better idea: Donate them to a qualified charity (such as Goodwill) and give your tax preparer the required information to take a donation.
The higher your tax bracket, the easier it is to benefit from donating items to charity. You just need to be itemizing deductions on your Federal tax return, which applies to most people that have a mortgage. Below is a three step formula that will help you maximize your deductions. We will use Goodwill Industries as an example, since it is an easy introduction to the subject of non-cash charitable donations:
Step 1: Itemized list
The key to a basic Goodwill donation is to make an itemized list. This list should include a brief description of the item(s), including quality of the item or its condition. List only items in good or excellent condition. Anything that is fair or poor, don’t bother as they will not qualify for a deduction. Once the list is complete, you will need to add the date of donation and name/address of organization. Make sure you also get a receipt when the organization receives your items. Keep this with your itemized list.
Step 2: Assign Values
Assign values you would typically see in a consignment shop or a reasonable fair market value (such as E-Bay). This is an area that is highly subjective, and it tends to trip people up. We recommend you just use good judgment here and common sense.
Step 3: Know the Limits
For donations over $500, the rule is you must include Form 8282 with your tax return. This is a very simple form with which most CPAs are quite familiar. The rules say that individual donations over $5,000 must have an appraisal. So, if you have a truck load to donate and you plan on valuing it over $5,000, you may want to put a different game plan together – or line up a qualified appraiser. I recommend multiple trips to Goodwill over the course of a year. Even if you go over $5,000 in total (which is not unusual), you reduce the likelihood your return will be flagged for additional review. A better idea: smaller contributions that are individually not close to this limit.
Publication 561, which is available at http://www.irs.gov, provides more detailed information than the summary we have provided here. Throughout the year, we see this trick as an easy way to accomplish multiple objectives:
- psychic boost of reducing clutter
- extra money in your pocket
- no hassle of a garage sale
The more you do this, the more comfortable and fun it becomes. (Whoever thought cleaning could be fun?) Your tax preparer can also provide guidance in this area. We recommend contacting them to explore this option further.