Westchester NY accountant Paul Herman has all the answers to your personal finance questions!
With spring right around the corner, many people have been doing some spring cleaning around the house. Instead of bringing old clothes, sporting equipment, and household items to the dump, you should consider donating them to a local charity or thrift store. Someone will find a use for your unwanted items and you could potentially lower your taxable income if you qualify for itemized deductions. You can qualify for itemized deductions if you exceed the allowable standard deduction, which in 2011 is $5,800 for singles and $11,600 for married couples filing jointly.
In order to maximize the tax benefits of your donations, you must first make sure that you are donating the items to an accredited organization. The IRS specifically defines a qualified organization, but the organization must, in general, operate for religious, charitable, educational, scientific, anti-animal or child abuse, and/or literary purposes. Note that donations made to specific individuals or political organizations and their candidates never qualify. However, donations to an entity which performs a substantial government function, like a donation to your local police department, can be deducted. If you have questions about whether or not a specific organization qualifies, please see IRS publication 526, or give us a call here in the office.
Secondly, if you’re donating clothing or household items to charity, the items must be in good condition and you are only allowed to deduct the fair market value of the item. In general, the fair market value is the price at which property would change hands between a willing buyer and seller. This is sometimes referred to as the “thrift market” cost of an item. Moreover, if your contribution recently appreciated in value, this would mean more money in your pocket. Remember that you’ll need to collect a signed receipt from the organization as proof of your donation. Furthermore, for contributions equal to or greater than $250 in value, you must obtain written acknowledgement from the organization showing the amount of cash or a description of any property contributed, and whether the organization provided any goods or services in exchange for the contributions. If you are feeling especially generous and plan to donate an item or group of items worth more than $5,000, you might want to consider having it appraised. In today’s digital age, you might even consider taking a pictures or a video of your non-cash charitable contribution as further documentation of your donation. If you receive a benefit from donating—like tickets to a baseball game for instance—you may only deduct the amount that exceeds the fair market value of the benefit received. So, if you are planning on doing some spring cleaning, be sure to follow these simple guidelines. There are many other ways to leverage the tax benefits of your deductible charitable contributions. If you have any questions, be sure to contact this firm.
Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!
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