As you are busy cleaning out the house for the New Year and scrambling to grab those last minute tax deductions, I wanted to point out a change that impacts most of us. The Pension Protection Act of 2006 has provided us with a change in the documentation required for donations of clothing and household items to charitable organizations. Previously, you could claim a deduction for an item that was in fair condition or better. Since the deductions for this line item exceeded $9 billion for tax year 2003, I guess the IRS is paying a little more attention here.
Effective for contributions made beginning on August 18, 2006, charitable contributions of clothing and household items must be in "good used condition or better." In addition, upon audit, the IRS may deny a deduction for any item which has "minimal monetary value" such as used socks or underwear.
Please note that the new law did not define the phrase "good condition or better." Does this mean a shirt with one button missing is in good condition while the one that also has a small hole is in fair condition? Who knows??? This will certainly produce some interesting discussions in the event of an audit. Obviously, it will be difficult, at best, to prove that your donated items were in good condition since you no longer own them. I would suggest that since we now have the benefit of digital cameras, just take pictures of the items you donate and save those along with your records. Talk about airing your dirty laundry!!!! I guess you can always include them in with the family vacation slide show to see if anyone is paying attention.
Generally, you can take a deduction equal to the fair market value of clothing and household items. A deduction is typically allowed for the price you could receive for that item at a flea market, yard sale or a thrift store. I find that the easiest way to handle this deduction is to just keep the pad of paper and pen with the pile of items to be donated and add them up as I go.
Be sure and save the receipts!!!!!!!!
Meet the Author
- Sue Ballmann
- Germantown, Maryland, United States
- I am a native Washingtonian, and I have lived here most of my life. I received a BBA in Accounting from St. Mary's College in Notre Dame, Indiana. After graduation, I passed the CPA exam and earned a Master of Science degree in Taxation from the University of Baltimore. Pax Tax and Consulting Group, Inc. specializes in taxation. Because I look at the BIG PICTURE when approaching client problems, my experience includes mortgages and real estate. I also hold life and health insurance licenses. My professional activities included serving on the Federal Tax Committee for the Maryland Association of CPAs and several nonprofit boards. I was the President of the Germantown Jaycees where I was involved in everything from the Paint a Pumpkin project to running parades. Most recently, I am a graduate of CEO Space in 509, 709 and 1209. I am the CEO of Roman Collar Restaurant Ratings, Inc. where we rate restaurants all around the world and offer high tech business solutions. We are now launching a Global Interactive Assistant (GIA) which will read, answer and file your e-mail for you as you drive down the road. TELEPHONE: 301-908-7002