If you donate goods, money, or services to charity, you’ll need to utilize the itemize deduction not the standard to have a tax benefit of giving. Plus, you have to have a grasp on the fair market value of tangible goods when it comes tax time. If you regularly donate tangible items to charities, writing off your donations can affect your tax return but only if documented properly. It is worth the effort to track your donated goods if you give valuable items, such as artwork, furniture, or serve in a role on a volunteer board. If your donations are more modest when passing on gently loved clothing and household items, it feels good to give them a second life for the joy of giving rather than focus on the burden of record-keeping or a tax deduction.

Valuing Donated Goods

If you’ve donated items such as clothing or household goods, how do you value them for the IRS? The answer is to determine the fair market value of your donated items. The “fair market value” is a fair price for an item that is determined by both the buyer and the seller on which they both agree. Goodwill has provided a handy PDF guide to the fair market value of commonly donated items.

Examples of when to itemize deductions include donating a large closet clean out after a major weight loss or when clearing out the effect after a loved one passes. Letting go of a significant quantity of furniture/furnishing when downsizing homes is another circumstance. When you initiate a high quantity donation, partnering with an organization who is willing to provide a pick-up and signed donation acknowledgement form is key.

A more sophisticated alternative to keeping track of donated items is an app called ItsDeductible by Intuit. It’s simple to use—all you do is add in your donated goods throughout the year in real time, and ItsDeductible automatically gives you the fair market value for your items. When you’re ready to file your taxes, you’ll have a completed list and value report ready to hand over to your CPA. If you need to track frequent gifts, then ItsDeductible is a great option to consider.

Valuing Donated Time or Expenses

According to an article on Nerdwallet.com, you’ll need to follow some rules when it comes to writing off your donated time or expenses. First, you’ll need to make sure you’re donating to a qualifying charity and document all your donations. It’s always best to get a receipt from the organization, or a letter outlining your full year of giving. If you’re not sure whether your organization has tax-exempt status, visit the IRS research tool. Gifting money to friends or family is not considered tax deductible. If you do gift money, however, be aware any gift over $17,000 for 2023 will be subject to the IRS gift tax.

If you serve in a volunteer board position for a qualified 501(c)(3) organization, your expenses may be deductible, especially if they involve traveling out of town booking flights, lodging, and meals. Inquire with each organization to ensure they provide an acknowledgment letter for those expenses.

Is It Worth it?

At the end of the day, ask yourself whether or not you need the tax deduction. You must itemize deductions on your 1040 return to receive a financial benefit from your donations. If you give more than $500 worth in tangible goods, you’ll have to document that donation on a form 8283, which sometimes requires an appraisal (and certainly more effort). Take a look at all your options for charitable giving and determine which itemized route is best for you.

At Organized Instincts, our daily money managers help gather your charitable giving receipts for your CPA come tax time. Schedule a call today and discuss what you may or may not be able to write off on your taxes.

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