27 Apr Charitable Contributions of Non-Cash Items: Claiming Your Deduction
Charitable contributions are a part of many taxpayers’ returns. But while claiming a cash donation to a non-profit is relatively straightforward, donations of non-cash items can be a bit more complex. In fact, many individuals make donations of their used items and never claim this on their tax returns. Rather than missing out on the opportunity for a deduction on your next return, here are a few basic guidelines you should know so that you can properly claim your non-cash charitable donation. If you have further questions, contact The Accounting Guys in Provo for tax advice.
Determining the Value
The first step in claiming a non-cash donation on your tax return is to calculate the fair market value (FMV) of the item or items that you donated. FMV is the price that the items would sell for on the open market. As most non-cash contributions are of used items, the FMV of your donations is typically much lower than what you paid for the items when they were new.
For example, many of our Utah clients make regular donations of used goods to their local Deseret Industries (DI). The FMV of those items would be the price that they would sell for in the store, not the original price of the items.
As with any tax deduction you wish to claim, documentation of your non-cash charitable contributions is very important. If you’re claiming more than $250 of non-cash donations throughout the year, then you will need to retain a written acknowledgment of the donations from the organization, as well as a description of the property that was donated.
Once again using DI as an example, when you make a donation at one of these locations, they will offer you a receipt for the donation. This receipt has several lines where you can write in the items donated and their value. You will want to fill this out and keep it in your records for when you file your taxes. For donations to other organizations, be certain to receive some form of acknowledgment showing that you made a donation, as well as the estimated value of the property given.
If you’re making a donation that has a FMV of more than $5,000, then you may need to have the property appraised to verify its value before you donate it. A qualified appraisal will need to be attached to your return to claim the donated property as a deduction.
Donating stocks to a qualified charity is another way to make a non-cash charitable contribution. The FMV of your donated stock is calculated based on the stock’s value on the date of the contribution, also known as the valuation date. If there is an active market for the donated stocks on the valuation date, the FMV is determined based on the average selling price of the stock on that date. So, if the highest selling price per share on the valuation date was $11, and the lowest selling price was $9, your donated stock would be valued at $10 per share.
Claiming a deduction for non-cash donations can be rather complicated, and requires careful documentation to support your claim. If you have any questions regarding how to claim this deduction, or need assistance filing your tax return, please contact The Accounting Guys in Provo for tax advice.