Tax Deduction Value of Donated Items
When you make a donation to charity, it gives you a warm glow inside. That glow should not make you forget the tax deduction value of donated items.
Value of Donated Items
It is sometimes possible to see a certain logic in the Internal Revenue System’s tax codes. When people donate items and money to charity, this helps society in general, and the tax deduction exists to encourage people to do it. When you are planning on claiming your donated items, the tricky part is determining what is considered to be their fair market value.
The IRS defines fair market value as the price that would normally be paid between a buyer and a seller neither of whom absolutely had to buy or sell the item. It is fairly obvious that this is by no means a precise science. The way it really works is to make a fair and logical estimate. Then, you just hope that the IRS sees it your way. The IRS does print some guidelines that can be of help, but ultimately, the value is going to be what you and the IRS agree is fair.
Of course, you are not going to have to defend you estimate of the fair market value of your donated items unless you are audited. To prepare for that eventuality, you can do several things. The most important is documentation. Original receipts are good. Also, receipts from the agency that received the donation. On larger items, it is helpful to take a photograph or video to prove its existence and its condition.
There are a couple of limits and requirements that you need to know. You can only claim charitable deductions up to an amount equal to 50% of your gross adjusted income. If you have more than this amount, they can be carried over to the next year. If you claim more than $500 worth of donated items, you must include a Form 8283 Noncash Charitable Contributions. If the value of any single item is $5000 or above, you must have the item appraised and there is a schedule with Form 8283 for this purpose.
The secret for determining the tax deduction value of donated items is to try to remember the fair market value concept. If you keep good documentation and set the value at a reasonable amount, your estimate of fair market value will usually suffice. If you should be audited and the IRS disagrees with you, they will simply reduce your deduction amount and take the extra tax.