Contact: Gigi Thompson Jarvis
202.822.6232, x119
gjarvis@naea.org
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For Immediate Release
The Joy of Giving Meets the Joy of Deducting
WASHINGTON, DC (March 8, 2011) Those who remember the public attention that former president Bill Clinton's tax return attracted when he deducted $2 apiece for donated underwear may shy away from claiming deductions for charitable donations. The fear of IRS scrutiny of the values you assign to your second-hand clothes is a legitimate concern. If you assign too low a value, you're not getting the deduction you deserve, but too high a value might attract unwanted attention from the IRS. So, when IRS tells us the deduction may not exceed "fair market value"–the price a knowledgeable buyer would pay—how can the taxpayer be sure his or her estimate is on the mark?
The first thing to consider in claiming charitable deductions is that in order to do so, you must file Form 1040 and itemize deductions. Second, your donations must be made to a qualified organization; no matter how much of a charity case your brother-in-law may seem to be, you may not claim donations to individuals. And regardless of the fashion advantage some consumers attribute to ripped or torn jeans, IRS doesn't see it that way. Donated clothing must be in good condition or better to be deducted. One helpful resource is the online valuation guides Goodwill Industries and the Salvation Army publish to help donors estimate the value of many commonly donated items, including clothing, household items, furniture and computers.
"If you're claiming that your donation is worth over $250, IRS is going to want to see some proof," said Debbie Cope, EA owner of the San Antonio, TX, tax preparation service To the Penny. "You'll need to ask the qualified organization that received your donation for a written description of the property donated and a statement concerning whether or not any goods or services were received in exchange for the contribution. If your non-cash contributions total over $500, you must fill out the IRS Form Non-cash Charitable Contributions and attach it to your return. Once any donation tops $5000, a qualified appraisal will be necessary, along with more paperwork. And if you are planning a car donation, keep in mind that these are often red flags for IRS auditors, who are well-aware that Blue Book value is often not the same as fair market value."
Other charitable contributions can include tickets to charity events, stocks, cash, or even items of historical value. To make sure you take advantage of every available deduction and avoid unwanted attention from the IRS, it's a good idea to consult with an enrolled agent when you are claiming large deductions for charitable contributions. Enrolled agents ("EAs") are tax specialists licensed by the U.S. Department of the Treasury who may represent taxpayers before IRS for audits, collections and appeals. You can locate an EA in your area by using the "Find an Enrolled Agent" directory on www.naea.org.
About Enrolled Agents
To earn the EA license, candidates must pass a background check and a stringent three-part exam on tax. To maintain the license, they must complete annual continuing education that is reported to the IRS. Members of the National Association of Enrolled Agents (NAEA) are obligated to complete additional continuing education and adhere to a code of ethics and rules of professional conduct.