Internet: http://www.cre8ivcpa.com

TO: All Clients
DATE: November, 1999 & 2000
FROM: Steven L. Jager, CPA
SUBJECT: NON-CASH CHARITABLE CONTRIBUTIONS

At this time of year, many clients may be pondering cleaning out the garage before year end and then deciding whether to go through the hassle of a garage sale or donating items to a qualified charity, many of whom sell these items in their own thrift stores.

You may have some hidden treasure...not only "treasures" which can help a worthwhile charity, but also, "treasures" that can benefit you on your income tax returns in the form of healthy deductions!

On the pages that follow are the rules, broken down into simplified steps, to help you garner the optimal deductions which are fair to you and will help to keep you from paying too much in taxes.

The last page is a form that you can use to track your NON-CASH charitable contributions to a specific charity. If you plan to give to more than one organization, please photocopy the form or call the office for additional blank forms.

As always. should you have any specific questions, please call.

WHAT IS "NON-CASH"?  As the name implies, it's anything except cash - from discard clothing , to furniture, automobiles, works of art, stock certificates.

HOW BIG IS MY CONTRIBUTION? Generally you may deduct whatever is LESS: 

•         Your cost, or

•         Fair Market Value

ARE THERE LIMITS?  A few. But we are talking of ordinary household items and personal belongings.  With such items the rules are quite simple.

        APPRECIATED PROPERTY. If what you give is worth MORE than its original cost (for example, antiques or works of art) there may be a problem. Physical things (as opposed to securities) must actually be USED - by the charity in a charitable function. For example, a work of art to an art museum would be used, while a work of art to a hospital might be displayed but has no connection with health care. If the item is not USED by the charity, your deduction is the LESSER of your cost or market value.

        BUSINESS PROPERTY.  If you contribute items used within your business we may have a problem. Any write-off you have already taken may place the item in the category above, since your write-off is treated as a reduction of your cost.

WHAT'S MY DEDUCTION WORTH?  This depends on your tax bracket. The tax saved by your deduction is always less than the item's value. Example:

WHY GIVE IT AWAY?  You might be too busy to sell the item. Who wants to spend a day in the hot sun running a garage sale! Maybe the cost of advertising plus the value of your time and energy makes selling look less than attractive. Perhaps you simply want to contribute!

FAIR MARKET VALUE (FMV) is generally the value placed on household discards. But what is "fair market value"? Well, here is the fancy definition:
            What a willing buyer will pay a willing seller, neither being forced to trade.

        WHO MEASURES FMV?  The public tells us FMV. This is not a fixed number, but a RANGE OF VALUES depending on condition, features, etc.

                TO YOU IT'S WORTHLESS! You should never be the one to establish value - after all, you're giving it away! It's worth nothing to you!

                NEVER USE "GARAGE SALE" VALUE!  Yes, people shop at garage sales, but they are looking for values BELOW FMV!  Besides - the garage sale closes in the afternoon, and won't be there tomorrow.

FOR TYPICAL DISCARDS - THRIFT STORES. Visit one! Maybe two or three. (Embarrassed? - Wear a disguise, or go far away from home!)  The prices are a real measure of value in your community. The shop will be open tomorrow and the next day - there's no "forced to trade" aspect for you or for the store. You will find prices are triple those of garage sales.

FOR MORE VALUABLE ITEMS - CLASSIFIED ADS.  Check your local paper. What's a comparable dining room set or entertainment center selling for? This is a valuable guide.

ADJUST YOUR PRICE WITHIN THE RANGE! Remember - FMV is always a range. Choose high, middle, or low values for your items depending upon their age and condition.

DON'T UNDER-VALUE YOUR GOODS! Most folks simply bundle things into bags or boxes and make a guess of the value. This is usually far too low a value for the items! On your visit to the thrift store, look at similar items.

VALUE DEPENDS ON CONDITION.  A sweater, which was worn only a few times, will be worth more than a well-worn copy that is looking baggy and bedraggled. Make note of an item's general condition.

        GOOD CONDITION. Scarcely used. Hardly noticeable signs of wear, no defects.

        NORMAL CONDITION.  Typical used merchandise, showing signs of wear, but no significant defects. Still serviceable. You wouldn't hide it from friends.

        POOR CONDITION.  Showing appreciable wear, or is clearly outdated.

A SHOPPING TRIP.    We visited four different thrift stores in the San Diego area in August 1999. Here are a few of the items whose prices we noted.

GOOD CONDITION ITEMS SELL HIGH!  Don't undervalue your items. Your garage cleanup can net you hundreds of dollars in tax savings!

SIX STEPS TO BIG TAX SAVINGS!

1. MAKE A LIST of your items, marking their conditions clearly.

2. ACQUISITION DATES.  Enter the dates you acquired the items. If you don't know exact dates, use approximate ones, or even the word "various".

3. ORIGINAL PURCHASE COST. Enter your best memory of the original cost of the items. You are only required to show the entire cost of the donated items, not each separate item.

4. YOUR CHOSEN CHARITY.  Record the name and address of the organization you have chosen for your donation.

5. BACKUP RECORD.  Spread the items on the floor or driveway and take a couple of snapshots. Or videotape the items. This can be valuable substantiation if your contribution is questioned. If you have already made the donation, skip this step. It is not a requirement, but a very valuable suggestion.

6. YOUR RECEIPT.  Get a SIGNED, DATED receipt from the charity. Keep this with your records.

SAMPLE RECORD SHEET. Although IRS does not require any particular type of record, the following sheet is a useful framework for such contributions.

Click here to see a printable copy of this form: