Taking a deduction for donations

[pennywatcher]

There's a thread here (http://www.hotcouponworld.com/forums/taxes/308120-deducting-donations.html) that touches briefly on this topic. There's also IRS publication 526 (http://www.irs.gov/pub/irs-pdf/p526.pdf) and IRS publication 561 (http://www.irs.gov/pub/irs-pdf/p561.pdf). But I'm still confused.

First, what really is the deductible amount of the items? It's not enough to say "fair market value". FMV is supposed to be determined on the day of transfer, not the day you purchased it. Fortunately, the IRS publications say you can use the purchase price as a good estimate if you donate within a short period of acquiring it. So is that the shelf price the day I bought it? The publications talk about goods that have increased in value. "If you contribute property with a FMV that is more than your basis in it, you may have to reduce the FMV by the amount of appreciation when you figure your deduction." If I only pay $0.50 for a $2 item, is my basis $0.50? Is the FMV $2? "The amount you can deduct for a contribution of ordinary income property is its FMV minus the amount that would be ordinary income or short-term capital gain is you sold the property for it's FMV." Is FMV what CVS can sell it for or what I could sell it for in a yard sale?

Forbes (http://members.forbes.com/forbes/2006/1211/218.html) said, "Under current law, when you donate tangible personal property, such as art or furniture, you can deduct only the lesser of what you paid for it or what it's currently worth--unless the charity keeps and uses the item for an activity related to its charitable work. Say you bought a violin for $10,000 and it's now worth $30,000. If you give it to a not-for-profit music school and the school uses it to teach students, you get to deduct $30,000. (Provided you have it appraised.) But if the school sells the violin for $30,000, you deduct only your $10,000 cost." That would indicate that if I give toiletries to a women's shelter that I should be able to deduct more than my basis. I can't find anything in official IRS documents that relates to this, though.

And then on to the documentation end of it. "In figuring whether your deduction is $500 or more, combine your claimed deductions for all similar items of property donated to any charitable organization during the year." What are "similar items"? Do I add up all my shampoo? Do I add up all the toiletries together? That number matters. If you're over $500, but under $5000, then you need not only a receipt from the charity, but also records of how you got the stuff, the date you got it, and your cost or other basis if held less than 12 months. What's a sufficient record? Do I need the original receipts or will a list I've made suffice? How detailed do you have to be on the items? Is it "shampoo", "Garnier Fructis shampoo", or "Garnier Fructis shampoo, 15 oz"?

:shrug7:

[MrsPinecone]

It's easy. I don't take a deduction. I just donate.

[berlinsmommy]

I talked at length with a tax accountant about this a few years ago. He admitted that this is one of those situations where the law is a little vague.

I talked to him in detail about couponing specifically and here is what he said, which *disclaimer* is HIS interpretation since the IRS publications do not specifically address this.

Coupons are a form of legal tender, just as cash, credit cards, or gift cards. Furthermore, in states like mine that have sales tax, coupons are recognized as legal tender because they are taxed. For example, if I buy a $1 item and use a $1 coupon, I still have to pay 6.6% sales tax (or whatever the locality rate is) on the $1, and since the state has to tax on actual amount paid, they must be recognizing coupons as a payment method.

However, store promos, including store coupons are not taxed (at least in my state), and in most cases nationwide are not taxed as the price before the promo is irrelevant, the price paid by the customer is what is taxed. For example, if your grocery store has soda BOGO and your receipt says that a 12 pk costs $3.99, then charges you 2 at $3.99, then takes $3.99 off leaving a balance of $3.99 that is what you pay taxes on, the sales price after the promo.

So, according to him if I donate new, unopened products I should save all my receipts and only deduct the dollar amount that I am taxed on because if somehow I were to be audited, showing that I paid sales tax of a certain amount would show that my state recognized my manufacturer coupons as legal tender. Does that make sense???

[pennywatcher]

It's easy. I don't take a deduction. I just donate.

That may be the way we go as well. We donate because we want to donate, not because there is financial incentive. The extra money would allow us to donate more, however.

[pennywatcher]

So, according to him if I donate new, unopened products I should save all my receipts and only deduct the dollar amount that I am taxed on because if somehow I were to be audited, showing that I paid sales tax of a certain amount would show that my state recognized my manufacturer coupons as legal tender. Does that make sense???

I can understand that logic. I have used that argument with a cashier or two. "Yes, I know I used this coupon and got this item free, but it still counts as a purchase. See, I paid sales tax on it and everything."

[flash]

my brother worked for the IRS flagging returns for audit for many many years, and I would also go by my in laws advice:

add up all like items, so all clothing together, all food together, etc.

you can deduct what your receipts show you paid, minus whatever the item has depreciated. The point of the tax deduction is to reduce the income on which you owe taxes. A standard depreciation is 90% (i.e., if the item is used at all, or was purchased more than around 1 month earlier), so a typical deduction would be 10% of the standard retail value. The exceptions are items which increase in value and have been appraised, with a load of documentation to go with it.

Personally I just donate everything without the deductions.

[mskitty]

I personally underreport what I donate because I hate filling out the 8283 for total donations of goods greater than $500. They are tightening up on the charitable donations for example the new restrictions that went into effect August 17, 2006. Its too much hassle to itemize what its truly worth and record it on an 8283. To me its a good compromise: the charity gets bags and bags of grocerys, health and beauty aids while I get a small tax break.

[Ginya]

I am a tax preparer, and I would advise any client of mine not to deduct this type of donation, although it might fly. Cannot imagine it would be worth the recordkeeping for proof. An itemized deduction does not come off your income dollar for dollar. The IRS gives everyone a Standard Deduction, if your total Itemized Deduction is greater, of course you use that. It gets technical, but only the amount over the Standard Deduction helps any on the tax. We all get the Standard (except some rare cases). For instance, if the Standard Deduction is $10,000, and your total Identized is $12,000, your only true benefit is $2,000 more in deductions. Just have to decide if YOU ever want to defend what you claim in an audit. Might add, in the last couple of years, we are seeing more audits than we have seen in the last 10 or more years put together. Just my opinion and not legal tax advice. Might add, if my client insisted, I would take the deduction ( providing they had enough other deductions to take itemized) but would advise on strict record keeping requirements in place.

Mod please delete this if it is advice that should not be given.

[flash]

I am a tax preparer, and I would advise any client of mine not to deduct this type of donation, although it might fly. Cannot imagine it would be worth the recordkeeping for proof. An itemized deduction does not come off your income dollar for dollar. The IRS gives everyone a Standard Deduction, if your total Itemized Deduction is greater, of course you use that. It gets technical, but only the amount over the Standard Deduction helps any on the tax. We all get the Standard (except some rare cases). For instance, if the Standard Deduction is $10,000, and your total Identized is $12,000, your only true benefit is $2,000 more in deductions. Just have to decide if YOU ever want to defend what you claim in an audit. Might add, in the last couple of years, we are seeing more audits than we have seen in the last 10 or more years put together. Just my opinion and not legal tax advice. Might add, if my client insisted, I would take the deduction ( providing they had enough other deductions to take itemized) but would advise on strict record keeping requirements in place.

Mod please delete this if it is advice that should not be given.

Ginya, I appreciate the "insider advice", although I certainly support the disclaimer that this is NOT posted as professional legal tax advice, just great information.

I personally don't deduct donations, even with receipts and documentation etc.

Thanks again!

[FantasyIsland]

DH and I donate at least 2K in actual cash to 2 charities in memory of his son. Additionally, we donate tons of HBA and groceries to foodbanks, etc. Even though we have receipts for all our donations, we do not deduct beyond the standard. We were advised by a friend who is an accountant that any itemized donations over a certain percentage of income WILL BE RED FLAGGED without exception and the amount of tax savings just isn't worth the time an audit will require - not to mention the headache.

Besides, we will donate the cash in his son's memory regardless of tax benefit and we donate the food/HBA because we can. I have been through 1 audit - HEHE - they wound up owing US - and we didn't even charge them a penalty or interest - but it was such a nightmare and the presumption was that we were cheating the govt and the auditor has that "tude" - not a pleasant procedure.

Fan

[BostonRed]

My accountant has given similar advice...no out of pocket, no deduction, and Mass. only taxes on the after-coupon price, so I pay nothing most of the time.

I didn't believe her at first, but a perusal through the tax regs shows they didn't really consider items received free and then donated. Seems odd that the IRS doesn't really have regs that cover donating the TV you win at the church lottery.

[too-old-now]

I donate a LOT, and I get receipts from the food pantries / soup kitchens/ women's shelters etc. There is a LOT of paperwork but we are meticulous about keeping it all.

We follow the IRS regs and guidance given in the publications. I know we are at risk for an audit, so I don't write down everything. In the event that I did get audited I would file an amended return and claim everything.

We record the value of the items at the time we donate them. Per the guidelines, it is up to the donor to determine the value, and as long as each donation is under $500 we do not need an appraisal. We do have all the receipts proving that the stores sell the items to some people, for more than we are claiming the value. We do not reflect the coupon savings, we take the benefit of the bargain.

We also keep pictures and detailed lists of all the donations in case we are ever questioned.

To us, it is more important that we donate the goods to help people. The tax benefit is just part of the process that allows us to help.

Keeping track along the way makes it easy to handle the deductions at year end.

I won't go into the actual numbers I deduct - but it is not an insignificant amount. Instead I suggest folks actually read the code, regs, and consult their own tax advisors.

[MaryMary]

I also agree on claiming an actual value of the donated item regardless if you paid for it and how much.
If I decided to donate a designer bag I received as a gift, why can't I get deducted $100 when the bag worth $300 according to the catalogs of this retailer?
If I decided to donate 20 bottles of shampoo sold everywhere for $3 ea, why can't I get at least $20 deduction despite the fact I've got it for free?
All above provided I have full description of the items donated and a receipt from the charity I gave it to. Will the total donations exceed 2% of my AGP to make a dent on my return, I'll let the calculations to decide, with current tax software it is easy to see.
Your mortgage and other deductable debts, medical expences and donations might as well bump you into itemized deductions rather then standard. It might be just $50 or so to drop you in another tax bracket.

[diva_dynamite]

We don't pay sales tax here, so that makes the issue a little stickier. It's pretty easy when we donate to our food bank, as they weigh the items, then give you a receipt that lists the weight of your donation and the IRS value of $1.62/lb (or whatever the current weight is). I just add them up over the year and go by that.

[heyaheather]

We don't pay sales tax here, so that makes the issue a little stickier. It's pretty easy when we donate to our food bank, as they weigh the items, then give you a receipt that lists the weight of your donation and the IRS value of $1.62/lb (or whatever the current weight is). I just add them up over the year and go by that.

In a sense that is so foolish--if only we paid for everything by weight! That would mean the $50 Diabetes monitor would be worth less than a $1 can of soup!

Also, without going into numbers, T-O-N, can you give us a little more info on your record keeping. A primer to help us get started. I know you have it together!! If only we all could! ...or at least me...

[too-old-now]

Different organizations will give you different receipts - I say whatever. I have kept copies of lists of items donated to which organization on which dates. I keep a photo next to each list, and attach the acknowledgment thank-you letter from the group.

If anyone wants to take a deduction for their donations, I suggest folks actually read the Publication 526 and form 8283 with instructions, and consult their own tax advisors.

[coupondink]

The pantries I donate items to give me receipts. I hand that to my accountant and he deducts them. :)

[MamaBird06]

How do you figure new items tax write offs when using coupons? How do you inventory yuor donations?

thanks

[hotcouponmama]

I get receipts from the foodbank. I take the donations there directly and not to a barrel or something like that in a store cause I want to be able to make sure I can account for it. The foodbank verifies what you dropped off, and I use retail value of the donation as the write off. I don't worry about factoring in the coupons because I view coupons as a form of currency.

[wookin]

I keep a spreadsheet of all pantry type donations. I use the regular retail value for tax purposes. The end of the year I give a copy of my donation values to each place I donate. I have 4 on my list for this year.

[purplefdu]

The shelter we donate directly to tells me to use retail value (I even admitted I didn't shell out more than a buck for $60 worth of pet food). So thats what I use. I'm thinking we'll be making a spreadsheet ourselves to track it this year. We didn't last year and didn't keep track but probably donated $300 in 6 months. My sister-in-law told me I'd better keep track for my taxes or else, lol.

[dalkambo]

I've always used a spreadsheet too. It just makes things so much easier. I also itemize my other donations on another tab on the spreadsheets. Come tax time, I print them out, hand 'em over to Mr. Tax Man, and it is WONDERFUL! Yeah Excel!

[wannabefree]

I have another load to take this week to my local food bank. They are an outreach ministry that handles lots of needs for our small community. They give me a tax receipt and are happy to take my glucose monitors even if they have the UPC's missing etc.

I haven't been using excel yet. I took a class years ago but don't remember how to really use it. I need to work on that though.

Mary Hunt's website gives a link to show the amounts to use for clothing. I think it's the Salvation Army's site but not sure about that. I keep that list in my tax file to use for reference. So far this year I have donated a couple thousand dollars worth of retail items. It adds up fast when you throw in some glucose monitors that retail for $79.00!

We are now empty nesters and can't use kids for tax deductions. I think this is a great way to help others AND help ourselves. I never used to mess with getting a receipt for donations! Duhh......just like I never "bothered" with coupons!!!

[too-old-now]

this thread needs to be bumped, as a reminder to those doing their taxes in the coming days.

[Mothernature]

I don't write down everything. In the event that I did get audited I would file an amended return and claim everything.
.

I would fire your tax adviser. You will be audited so deeply and for so many years, you would cry.

[adriannasmommy1216]

so my cousin loves to stockpile worse than me, and she has lots of the knox gelatin, shampoos, body washes, and so much more. she saves all receipts for everything. she is starting to box it all up, and wants to donate to local organizations and pantry's but she wants a sheet for tax deductions, how does that work, she hasn't been able to call yet, the places are only upon certain days. do they have certain amount they automatically put down? if someone has donated in the past and gotten a task receipt any info is appreciated. thanks so much. :smile:

[motherofmolly]

places here have you fill out a form and they stamp it...they dont write in an amount...they then mail a letter with the tax id info....

but, the value that should be written off, is the value after taxes. (since she has all her receipts)....

if no receipts, i use the "what would you pay for it at goodwill or a garage sale"

[joshmamabear]

if she wants to donate for tax deduction purposes, she has to do the long form and itemize them. AFAIK of donations, you can only put the amount you paid for items being donated, not the sale price before coupons. You cannot also add gas and other incidental expenses. I was told there was also a cap to how much one can donate per year or you might just be asking for an audit if you put a high amount of donations.

HOWEVER, if she cannot come up with deductions that will be over the standard deductions, e.g., this year it is 11,400 for married filing joint, then it is better to just go by the standard deductions.

[Mothernature]

I am not aware there is a cap per se. We claimed the $10,400 in donations in 2007. I wrote down every item we donated on paper and kept all receipts. We decided to max out the donations as we knew we were relocating.

Sure enough, just a hair under the 3rd year, we received an audit notice for 2007 from the IRS. The government is broke and looking for money wherever they can find it.

We kept all receipts and well documented. The IRS backed down and realized they tried to bleed a turnip. I expect to hear of more audits to members here in the future.

[motherofmolly]

I am not aware there is a cap per se. We claimed the $10,400 in donations in 2007. I wrote down every item we donated on paper and kept all receipts. We decided to max out the donations as we knew we were relocating.

Sure enough, just a hair under the 3rd year, we received an audit notice for 2007 from the IRS. The government is broke and looking for money wherever they can find it.

We kept all receipts and well documented. The IRS backed down and realized they tried to bleed a turnip. I expect to hear of more audits to members here in the future.

this is what the irs calls an "easy" because most people do not keep receipts and overestimate what the donation value is. the irs thinks that they can audit people and turn that into a quick tax bill.

[Mothernature]

this is what the irs calls an "easy" because most people do not keep receipts and overestimate what the donation value is. the irs thinks that they can audit people and turn that into a quick tax bill.

We were not an "easy". My husband is a CPA and the auditor knew this. The auditor referenced his PTIN.

This is what was so surprising and ballsy about the audit. CPA's w/PTIN's level the field and are not great audit candidates.

The government is desperate for money.

[motherofmolly]

We were not an "easy". My husband is a CPA and the auditor knew this. The auditor referenced his PTIN.

This is what was so surprising and ballsy about the audit. CPA's w/PTIN's level the field and are not great audit candidates.

The government is desperate for money.
sorry i wasnt meaning that your family was the easy on this...just in general the irs sees this as an easy way to audit people and get money....with your dh-they just picked the wrong person!