Accountants note that although taxpayers can claim valuable income tax write-offs for gifts of property to charity, they should not get greedy. If a taxpayer doesn’t have the proper records to back up the claims, most or all of the deduction may be denied. Take the couple from West Virginia in a new case. They claimed to have donated more than 20,000 household items, valued at $145,250, in a single tax year! Not surprisingly, the IRS challenged the deduction.
Accountants point out that tax law imposes strict record keeping requirements for charitable gifts of property. Following the rules enables you to claim the maximum allowable deduction.
If donated property such as used clothing and household items has declined in value, you can deduct the current fair market value (FMV) of the property. However, additional tax return information is required for gifts valued above certain thresholds. For gifts above $500, you must attach to the tax return a written description of the donated property and other relevant information. If the gift is valued at more than $5,000, the client must obtain an independent appraisal of the donated property and attach an appraisal summary to the return. Similar items of property must be aggregated in determining whether gifts exceed the $500 and $5,000 thresholds.
The taxpayers in the new case didn’t have much of a chance when the Tax Court examined their records
Facts of the case: For the 2011 tax year, the taxpayers allegedly donated more than 20,000 distinct items of property to Goodwill Industries, a 501(c)(3) organization, in Frederick, Maryland. The couple claimed that they made dozens of separate trips from their home in Shepherdstown, West Virginia to deliver the items to this particular Goodwill location.
Accountants, In terms of claimed dollar value, roughly half of the gifts consisted of clothing and accessories. In this category for 2011, the taxpayers allegedly gave Goodwill 1,040 items of boys’ clothing, 811 items of girls’ clothing, 658 items of men’s clothing and 945 items of women’s clothing. In the furniture category, they reportedly gave Goodwill, among other items, 115 chairs, 36 lamps, 22 bookshelves, 20 desks, 20 chests of drawers, 16 bedframes and 14 filing cabinets. In addition, they claimed to have donated 3,153 books to Goodwill.