Are Your Non-cash Charitable Deductions Screaming, “Audit Me!”?Posted on December 8 2011 by admin
Let’s review what’s required to substantiate non-cash donations to charity of more than $500 and $5,000. The donor must report on Form 8283 and maintain records containing the following:
• the name and address of the charity
• the date and location of the contribution
• a description of the property in detail reasonable under the circumstances
• the fair market value of the property at the time the contribution was made, including the method used in determining the fair market value
• for an item of property that exceeds $5,000, attach a fully completed appraisal to tax return
Mr. Roberts and my executive failed to meet all of the above requirements but particularly their determinations of fair market value were greatly exaggerated. Each of Mr. Robert’s used items (towel, bed sheet, book, children’s toy, etc.) had an average value of $63.68. When he was asked how he determined the values, he replied:
“That’s determined by looking at going shopping, looking at the ads when I purchase clothes, cutting it as by some value depending upon the wear. When my children were young, I would buy the, you know, I’d buy my daughter a brand-new dress and she’d wear it two or three times and grow out of it. So it’s still have a lot of value in it. So it depends on the condition of the materials, an estimate.”
Obviously, the court did not find his testimony credible.
Determining value is subjective but charities such as Goodwill and Salvation Army have valuation guides that give suggested ranges to assist you. Many people are surprised to learn that unless an item is brand new or in excellent condition, it’s probably worth no more than a fourth or third of original cost. Also, you can only claim a deduction for goods in good condition or better. Consider taking photos to substantiate your records. Lastly, you may be assessed penalties if you overstate values.
Links for Salvation Army and Goodwill’s Valuation Guide’s
There is nothing more complex than the world of taxes. We know this and yet we chose careers where we face these issues everyday. We get questions day in and day out about new tax laws, forms and news items and how they affect everyday people and businesses. Well, here at Henry & Horne, LLP we have set out to do what we do best; help everyday people understand what is going on in the world of state, local, federal, estate and international taxation. We will provide these weekly posts and we encourage you to give us feedback on those posts as well as letting us know what else you would like to know more about. Welcome to "Tax Insights." We hope you find this blog informative and worthy of your time.
Before posting a comment on a blog post please be aware that we do not give free tax advice to non-clients by email, comment response, or phone. Thank you!
- Exemption Due to Marketplace 1095-A Error
- IRS Marks National Military Appreciation Month
- Tax Benefits of Hiring Children to Work in the Family Business
- ADOR Provides Additional Guidance on Prime Contracting Classification
- Benefits of a 529 Plan for Arizona Taxpayers
- Bill Passed to Enhance College Tuition Plans
- AZ Expands School Tuition Organization Credit to S Corps
- Did You Participate in an Employee Stock Option or Stock Purchase Plan?
- Mid-Year Premium Tax Credit Checkup
- Here We Go Again – The Death Tax Repeal Act of 2015