Apart from helping the community, donating to charities can also enable you to save money while filing returns. Not just cash contributions, tax deductions are applicable for charitable donations in the form of clothing, household items, property, and vehicles as well. While cash contributions to charitable organizations are easier to record, making noncash donations is a great idea if you are falling short of money. Although, managing noncash donations can give you a bit of a headache, as their worth needs to be backed up with acknowledgments and appraisals so that the Internal Revenue Service can process your claims.
If you are planning to donate the noncash items but are uncertain about the various requirements, don’t fret. Read on to know certain important things that can streamline the tax deductions for noncash donations.
- Create a proper list of the items that you intend to give away in charity, along with their description. Apart from the description of every item listed, you should also state the items’ worth, the date on which the donation was made, the name and address of the charitable institution, and the resources you used for finalizing the value of donated items. This is because you will need to mention its details in Form 8283 for claiming tax deductions.
- Ensure that you scrutinize the condition of every item listed and decide its value. The IRS will accept a tax deduction for a charity item that is in a sound, working condition only. Basically, a broken music system that needs repairs will not be considered as a noncash tax-deductible donation. It would be ideal to get the noncash charity items assessed to determine their value. You can refer to the valuation guidelines prescribed by non-profits such as Goodwill or Salvation Army for commonly donated items such as clothes, appliances, furniture, furnishings, and more. If you are giving away a brand-new, unused item, keep the receipts to justify its worth.
- For noncash tax-deductible donations worth more than $250 and less than $5,000, you will be expected to submit a written acknowledgment from the charitable organization that meets the parameters laid down by the IRS. To be specific, an acknowledgment letter should comprise details like the description of the noncash items but not its value, whether the charity has traded any goods or services in exchange for the donation, and, finally, a description and an estimated worth of the goods or services provided by the charitable organization.
- You can claim charity tax deductions on food and groceries as well. However, remember that it is crucial to get a written acknowledgment of the donation made. Likewise, you should save the store receipts of the groceries purchased as proof.
- Although having pictures of the noncash tax-deductible donations isn’t mandatory, it is advised that you take some, especially if a lot of items are being donated. The pictures can come in handy in cases where the return is being audited.
- Making your own receipt to support the claim is also a good idea. This way, all you have to do is get it signed while handing over the charity items.
- If you are donating items that are worth more than $5,000, you should get a written appraisal from an authorized appraiser, along with a written acknowledgment letter from the charitable institution. However, no appraisals are needed if you are donating publicly traded securities.
- There are certain restrictions involved if you are donating boats, planes, and vehicles. Additionally, such charitable write-offs will be based on the sales proceeds when the non-profit organization sells the boat, plane, or vehicle instead of basing them on the fair market value estimated for it. In simple words, IRS will only consider the sale value and not its actual worth.