How to reap the full tax benefit. You’ve done your spring cleaning and now you have boxes of outgrown clothing and unused household items. Should you toss them, have a garage sale or keep them?
If you opt for a garage sale, you have to devote time to making everything presentable, marking prices, setting up tables, advertising and running the actual event. The benefit is instant money for all your hard work, but generally at far less than what it’s really worth.
A better option might be to donate that property to a qualified charity such as Goodwill, the Salvation Army or your local church. If you are able to itemize your deductions, you can deduct the fair market value (FMV) of the property you donate. Here are the three most common mistakes that people make when donating property:
• Failure to document what was actually donated to the charity. Say you donated six men’s shirts, two pairs of children’s shorts, three blouses and five pairs of men’s pants. Chances are you just put everything in a bag and told your preparer that you donated a bag full of clothing and you have no documentation. Keep a detailed list of the items you donate and their condition.
• Undervaluing the property that was given to the charity. This is always a subjective area but the law states the deduction is equal to the FMV of the property given. What do you use as the FMV? If you give used clothing to Goodwill, for example, the FMV would be the price that typical buyers actually pay Goodwill for clothing of this age, condition, style and use. Along with a detailed list of the items you donate, establish a value for each item. Local thrift stores often have a list of items with suggested values.
• Failure to obtain documentation that the charitable organization received the property. Charitable organizations will provide you with a receipt acknowledging your contribution.
If you can establish these three areas, you are in complete compliance with the law and are allowed to deduct the value of all property you donate to a charity.