Deducting Non-Cash Charitable Gifts – a Word of Advice

May 29, 2013 by Ed Becker

Do you have a dusty piece of machinery taking up space in your business warehouse? Or perhaps the neighbors are complaining about that car parked on your front lawn?

Charitable gifts are an excellent way to reduce tax liability, but unfortunately, are closely scrutinized by the IRS. The following tips will help ensure you report charitable gifts in a manner that is fully compliant with federal tax code.

Donate to a Qualified Organization

It is absolutely essential that charitable donations be provided to a qualified charitable organization. By qualified, we’re talking about an organization that has obtained tax-exempt status from the US treasury. Many individuals make the mistake of donating to their favorite political candidate or simply a family member in need.

Determine Fair Market Value

In some cases, a charity may provide goods or services in exchange for your charitable gift. The taxpayer is only allowed to deduct the net amount of the gift. For example, if you donated an old vehicle valued at $1,000 and received a $100 gift card from the charity in return, the net value of the charitable gift would be $900.

It can be tempting to appraise your non-cash charitable gift at the highest possible value, but it’s best to avoid this trap. The IRS is far more likely to audit a tax return that has an unusually high amount of charitable donations. In addition, the IRS has the ability to dispute valuations that appear to be inflated So if you’ve decided to donate the family yacht that cost $200,000 in 1985, don’t expect a similar tax reduction in 2013. You will need to find the median selling price of comparable yachts in the present day market.

As a general rule of thumb, appraise the item at an amount that you could sell it on eBay or Craigslist. Look for comparable items for sale and base your fair market value on the results of this research.

In addition, many charitable organizations will determine the value of your donation. The Goodwill publishes a list of approximate donation values on their website. When making a charitable donation, it never hurts to ask the charity to help you set the value of your gift.

Obtain Written Proof of your Donation

A written record must accompany all charitable donations. Virtually any type of official documentation will suffice as proof of a donation, including bank statements, receipts from the charity, payroll deductions, etc.

Keep in mind, any donation that exceeds $250 in value requires a written statement from the charitable organization. An authorized official from the qualified charity must provide statement that describes the property and the total value. It must also report any compensation or property that was provided by the charity in exchange for the gift.
Meet IRS Form 8283

Form 8283 is designed for taxpayers to report noncash charitable donations to the IRS. If you expect to donate more than $500 ($5,000 for C-Corporations) in noncash property, this form must be included with your federal 1040 tax return documents. The form requires that you provide the location of the charity, a description of each item donated, and its net market value.

If you’ve followed the tips outlined in this article, IRS form 8283 will be a breeze. Maintaining a conservative approach on property valuation and choosing your charities carefully will ensure your donations do not come back to bite you in the future.