With summer upon us, it might be a good time to go through your closets and clear out a little room while you have some more free time. Making donations of property is not as tricky as your may think. The rules on donating items is very clear – always get a receipt. TurboTax ItsDeductible will help you value and track donated items all year long so you’re ready to go at tax time.
Now is an excellent time to go through some of your clothes to see if there are a few items you want to get rid off. My personal rule is that if you haven’t worn it in a year and it’s still in good condition, donate it. If you no longer fit in it, donate it. You don’t need to keep old clothes lying around taking up space.
If there is a piece of furniture in your home that you are ready to get rid of, call up your local Goodwill or Salvation Army to see if they will take it. If it’s in reasonably good condition, they will take it. By donating furniture, you help yourself out in two ways, first, you get the tax deduction for the fair market value of the piece of furniture. Second, you don’t have to haul it yourself because the charity will send a truck to pick up the furniture for you.
Electronics are tricky because by the time you usually stop using something, it’s obsolete and has very little by way of market value. If that’s the case, consider recycling instead of donating the item, which may be your only option if you can’t find any charities willing to accept it. If you’re having trouble, look for charities that specialize in refurbishing or repairing the electronics you’re thinking about donating.
Stocks & Bonds
Donating appreciated stock is one of the best ways you can cut your tax bill and help out a charity in a big way. When you donate stock, you get to deduct the fair market value of the stock at the date of donation. If you purchased $100 in stock and it appreciated to $500 when you donated it, you get to deduct $500 from your taxes. Not only that, you don’t pay capital gains taxes on the appreciation. If, however, the stock has lost value, it’s better to sell the stock first and then donate the cash proceeds. You are able to deduct capital losses against capital gains, so deducting the loss is better for tax purposes.
For everything else, just get a receipt of the fair market value of the item you donate and make sure it passes your own personal sniff test with regards to the deduction. In the end, the charity will let you know if they are interested in your donation so you can use that as a guide. Anything from old appliances to home tools is fair game, donate whatever you no longer need but can still be used by someone else.
$5,000 Appraisal Rule
If you have a receipt, the IRS will usually take your claim at face value. If, however, you claim a deduction of more than $5,000, the IRS will want you to get an appraisal of the item. When you get an appraisal, be sure to document everything and get as complete an appraisal as necessary.
The IRS will want to see the qualifications of the appraiser, his or her demonstrated knowledge of the property, and must give all the facts necessary for an independent auditor to make a similar determination. There are exceptions to this rule, such as, in the case of publicly traded stocks or bonds, as the price is publicly known on the valuation date.
I hope this helps you clean out a bit of the junk you may have stuck in your attic and reduce your tax bill! Don’t worry about knowing these tax rules because TurboTax will ask you simple questions and give you the tax deductions and credits you are eligible for based on your entries.