Taking a deduction for donations

[pennywatcher]

There's a thread here that touches briefly on this topic. There's also IRS publication 526 and IRS publication 561. 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 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