Goodwill and tax deductions

[Dunce]

I am about to clean out a ton of old clothes and stuff around the house and was planning on donating to Goodwill and have that as a tax deduction.

I am already aware of the importance of documenting a list or pictures/video of the items before donating. Also, I have read up on the free market value issues and was just planning on assigning the value to be roughly equal to or slightly less than what the item would sell for in the store. I don't have any huge donations like a car or boat, just clothes and household goods.

I just have a few questions for some of you who have done this before:

Are there any problems with donating in one state and then moving to another state to start residency and putting the deduction on the taxes that are filed as a resident of state #2? I would not think this would be an issue since the deductions are on federal taxes but I could be missing something.

There are a few items which are literally new and never-used or at least in like-new condition. Should I assign more value to them on the forms to get a true free market value not just "Goodwill market value" ?

Anybody with experience in making Goodwill or Salvation Army donations in excess of $500 total? I think there is an additional form to fill out once you get to that point.


Thanks. Please help me get a few bucks tossed back in my direction, even if it doesn't happen for another year.

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[Dunce]

Also, I assume this benefit is only useful for people planning to itemize. I have zero experience with paying taxes since I've been a student nearly my entire life. If I remember correctly the "standard" deduction is something like $5000 for a single person so it's pointless to go through the process of donating an itemized list to Goodwill if the total of all deductions does not exceed the standard, right??

I'll be an intern next year and will be married (I'll be making the usual ~$43k and my wife will hopefully be pulling in close to the same amount) . I don't know if we will file joint or separate. Also, we have little to speak of financially -- no big portfolio, no real estate investments, etc. However, we plan to buy a house within about 6-9 months from now.

I am wondering if being in that situation will mean that it would make sense to itemize and go for a big Goodwill or Salvation Army deduction. Or should I scrap the idea and just deal with the hassle of having a big garage sale?

 

[AndyFromMDTAXES]

Great questions.

For starters, the rules changed in 2006. Now, you can only claim a deduction for items that are in Good Condition or Better. That's why it's a good idea to take a picture of what you're donating. How the IRS will ever enforce this rule, I have no idea. (I assume if you have no picture or other evidence to support the condition of the items donated, the IRS will just assume they don't meet the standard of "Good or Better" and disallow a chunk of what you deduct.)

When you claim a deduction for non-cash contributions, here are the rules:

1. If the total value of the non-cash contributions are less than $500, you just write down the amount you're claiming on the Schedule A - Itemized Deductions.

2. If the value of items donated exceed $500, but are less than $5,000, you need to complete and attach a Form 8283 to your return. On that form, you write down a description of what you gave, it's fair market value, when you got it, and what you paid for it. A good place to get more info is to go to www.irs.gov, and look up the instructions to the 8283 form.

3. For most non-cash contributions in excess of $5k, the IRS wants a written appraisal substantiating the items donated. You also need to complete page 2 of the 8283.

You're correct that you need to itemize your deductions to be able to save taxes from your donation. For 2008, the standard deduction for a married couple is $10,900. If you and your spouse are both earning about $40k, and you don't own a home, chances are good that you won't end up itemizing, even if you claim a large deduction for these items that you're donating.

Finally, even with the new standard of Good or Better, this is one of the deductions that people looking to be a little aggressive with their deductions tend to push.

I hope this points you in the right direction.

 

[Dunce]

thanks. That's a good summary of what I have been finding out on the IRS website and other places around the internet.

If we become home owners in about 6 months or so, will that likely set us up as being able to itemize? I am very unfamiliar with what types of issues put some one into the itemization category. As I said, I don't have a bunch of capital-gains type of stuff but will definitely be a home owner by the time tax season comes around in 2009. I have heard that the costs and expenses associated with owning a home are often sufficient to warrant itemization.

Also, the big question for me right now is does anyone out there know the rules regarding donating in one state and then moving to another state where I will be filing next spring? I will be moving in about a month from now.

 

[AndyFromMDTAXES]

For your federal return, the IRS doesn't care where you donate these items. The only requirement is that you make the donation during the calendar year.

For the states, you might want to see which state will give you a bigger bang of this deduction. Some states allow you to claim itemized deductions, while others tax you on gross income.

Since you'll be a part-year resident of two states, you'll report this donation based on the date you made it. So if you move on July 1st, and make the donation on June 15th, you'll report it to the first state. If you move on Juoly 1st, and make the donation on July 5th to the state where you were living prior to July 1st, you'll claim the donation on your new state's return.

Which state do you live in, and which state are you moving to?

 

[Dunce]

SC to TN

The other issue is this. I did not file this year. I am a student and have no income source other than student loans. I will not be working at all during the 4 weeks between graduating and moving to Tennessee.

But I think this may be a non-issue because TN has no state income tax if I remember correctly, so I was thinking I should be able to submit the 8238 deduction form with my federal return. Any problems with this?

 

[AndyFromMDTAXES]

The 8283 is a federal tax form, so there is no problem with submitting that form with the federal return that you file for 2008. Actually, if you end up itemizing your deductions, and are claiming a deduction of more than $500 for "non-cash contributions", you're required to complete and attach the Form 8283 to your federal return.

 

[Dunce]

Thanks for the replies. Hopefully someone else can learn from this also.

As it turns out, I probably won't be itemizing anyway, so I will not be using a donation as a tax deduction. I plan to buy a house in a few months, probably around December. However, I don't have much else right now to deduct to justify itemizing. If I had a house already with mortgage and property taxes, it might be a different story when I file in 2009, but for now I will have to hold off until next year on the idea of a charitable deduction.