In the springtime a person’s thoughts turn to — spring cleaning! I have to admit that spring cleaning is one of my favorite chores. Why? As I weed things out, I discover treasures I forgot I had, and when I’m done my shelves and closets are clutter-free and accessible. Aside from freeing up space, cleaning has financial advantages as well. If your one-time treasures have turned to trash, by donating them to those who are less fortunate, you might turn them into tax savings.
The limits for how much you can donate to charity don’t affect many of us. The deduction is limited to 50% of your income, and donations of property to certain organizations, such as veterans’ organizations, fraternal societies, nonprofit cemeteries, and certain private non-operating foundations, or to be used by an organization., are limited to 30% of your income. Unless the stuff in your closets are really, really valuable, those limitations probably won’t impact you.
But here’s a limitation that will apply to you: to garner a tax deduction for donations, you must itemize your deductions. That means your eligible medical expenses, long-term care expenses, interest, taxes, etc. must exceed the IRS standard deduction (in 2011, $5,800 if you are single, $11,600 if married, and $8,500 if head of household).
To take a deduction for property donated, it must be in usable condition, and you must establish its fair value. For most clothing and household goods, that’s the thrift shop value. You can use the TurboTax Its Deductible to determine the value for most household items, and get tips from the IRS on charitable deductions. You’ll need a signed receipt that proves you made the donation. Watch this quick video about deducting charitable contributions if your prefer a visual guide!
This year I’m thinking about donating a car to charity, but I haven’t made the final decision. Giving a clunker charity used to be straight-forward. Find the value in the Kelley Blue Book or other valuation service, ask a friend to help you deliver the car to the charity, then drive off with a tax break.
But now car donations are somewhat more complicated. Instead of establishing the value yourself, your deduction is limited to the amount that the charity gets when it sells the vehicle. So what you thought would be a $2000 deduction, based on Blue Book value, turns out to be only $1500 if that’s all the charity can sell the vehicle for. That puts you in the peculiar position of not knowing the amount of your deduction until after you make the gift.
Just like other deductions, your gift doesn’t reduce your taxes dollar for dollar. So a $1500 donation may save only $300 to $500 in taxes. And there’s my dilemma: go though the hassles of fixing up my car and selling it, or take the easy more generous route of donating it and getting a tax deduction. I still haven’t decided.