How do I write-off a donation?
November 2, 2011 10:10 AM Subscribe
Tax question: How do I determine the value (if any) for a donation write-off?
I have acquired several thousand dollars worth of cell phone accessories that someone here recommended I donate to Cell Phones for Soldiers.
I would like to do that and take a tax write-off for the value.
I acquired these legally and for free. A store was dumping old inventory and I took them all.
I looked up the values of each item and the current retail (mostly discounted) price according to the retailer comes to $16,000.
Can I donate these and take ANY size write-off considering the fact that I didn't pay for them? Can I take the write-off when donating to Cell Phones for Soldiers (a 501c3 Non Profit)?
What do I need to know before going through with this?
I have acquired several thousand dollars worth of cell phone accessories that someone here recommended I donate to Cell Phones for Soldiers.
I would like to do that and take a tax write-off for the value.
I acquired these legally and for free. A store was dumping old inventory and I took them all.
I looked up the values of each item and the current retail (mostly discounted) price according to the retailer comes to $16,000.
Can I donate these and take ANY size write-off considering the fact that I didn't pay for them? Can I take the write-off when donating to Cell Phones for Soldiers (a 501c3 Non Profit)?
What do I need to know before going through with this?
IANATA, etc.
Assuming the donation is deductible, the rule is that you're allowed to write off the value what a motivated buyer would currently pay. If the stuff is new-in-box, you could, in theory, sell it to a motivated buyer for the current market price. If it is opened, used, etc., then use that price instead.
The tax deduction is allowed regardless of what you paid for the items. It could be stuff you paid for at one point; it could be stuff you were given; etc.
posted by introp at 10:20 AM on November 2, 2011
Assuming the donation is deductible, the rule is that you're allowed to write off the value what a motivated buyer would currently pay. If the stuff is new-in-box, you could, in theory, sell it to a motivated buyer for the current market price. If it is opened, used, etc., then use that price instead.
The tax deduction is allowed regardless of what you paid for the items. It could be stuff you paid for at one point; it could be stuff you were given; etc.
posted by introp at 10:20 AM on November 2, 2011
The IRS publication Determining the Value of Donated Property.
"Generally, if the claimed deduction for an item or group of similar items of donated property is more than $5,000, you must get a qualified appraisal made by a qualified appraiser."
The IRS publication Charitable Contributions.
"The amount of your deduction for charitable contributions is limited to 50% of your adjusted
gross income, and may be limited to 30% of your adjusted gross income, depending on the type of property you give and the type of organization you give it to."
Also, one way to determine the fair market value might be to see what a store would sell the items for. You say that you got them for free. That suggests that the store believed that the value of the items was zero. Not definative, but it suggests that you should be careful.
posted by Mr.Know-it-some at 10:25 AM on November 2, 2011
"Generally, if the claimed deduction for an item or group of similar items of donated property is more than $5,000, you must get a qualified appraisal made by a qualified appraiser."
The IRS publication Charitable Contributions.
"The amount of your deduction for charitable contributions is limited to 50% of your adjusted
gross income, and may be limited to 30% of your adjusted gross income, depending on the type of property you give and the type of organization you give it to."
Also, one way to determine the fair market value might be to see what a store would sell the items for. You say that you got them for free. That suggests that the store believed that the value of the items was zero. Not definative, but it suggests that you should be careful.
posted by Mr.Know-it-some at 10:25 AM on November 2, 2011
Best answer: IANAAccountant, but I do have an advanced degree that involves minute understanding of charitable giving law, so I can add/affirm:
You get a charitable donation based on the Fair Market Value (FMV) of your donated item(s). That means, what a reasonable person would pay for them. To use a classic example, a brand new car on the street has less FMV than a car still on the showroom floor.
If you've researched the items you have and have determined that you believe them to be worth $16,000, you absolutely need to get them appraised. Make it easier on your appraiser and have a spreadsheet of the items, descriptions, and values. Then your appraiser needs to fill out form 8323 (above) and you can send that in with your donation.
Be advised that there are limits to the amount of money you can deduct for charity on your taxes. If you make $32,000/yr or less, you may not be able to write off a $16,000 donation because it is over your 1/2 income threshold.
Before you make a donation of $16,000 worth of phones and accessories, please contact the charity to make sure they can accommodate your large donation!
Also, you should be aware that Cell Phones for Soldiers is, well, not a very good charity, despite their mission. Charity Navigator gives them one star (out of four).
posted by juniperesque at 11:25 AM on November 2, 2011 [2 favorites]
You get a charitable donation based on the Fair Market Value (FMV) of your donated item(s). That means, what a reasonable person would pay for them. To use a classic example, a brand new car on the street has less FMV than a car still on the showroom floor.
If you've researched the items you have and have determined that you believe them to be worth $16,000, you absolutely need to get them appraised. Make it easier on your appraiser and have a spreadsheet of the items, descriptions, and values. Then your appraiser needs to fill out form 8323 (above) and you can send that in with your donation.
Be advised that there are limits to the amount of money you can deduct for charity on your taxes. If you make $32,000/yr or less, you may not be able to write off a $16,000 donation because it is over your 1/2 income threshold.
Before you make a donation of $16,000 worth of phones and accessories, please contact the charity to make sure they can accommodate your large donation!
Also, you should be aware that Cell Phones for Soldiers is, well, not a very good charity, despite their mission. Charity Navigator gives them one star (out of four).
posted by juniperesque at 11:25 AM on November 2, 2011 [2 favorites]
Response by poster: Awesome answer, Juniperesque. Thank you so much. I make plenty of money so the deductible amount isn't a big deal. I emailed a few appraisers that I found for "household goods" on appraisers.org plus I personally know of a local appraiser I can ask to do this for me.
The one-star rating concerns me. I should look into other options. Does anybody have any other BETTER options for charities that are better run?
posted by Thrillhouse at 11:31 AM on November 2, 2011
The one-star rating concerns me. I should look into other options. Does anybody have any other BETTER options for charities that are better run?
posted by Thrillhouse at 11:31 AM on November 2, 2011
juniperesque: what if the donor acquired the donated property for free? I'm no expert in this area, but aren't there some circumstances when the amount of the deduction has to be reduced if the donor would have recognized a short-term capital gain on the sale of the contributed property? I'd be careful here and contact an accountant or tax preparer with experience in charitable contributions.
posted by lex mercatoria at 1:36 PM on November 2, 2011
posted by lex mercatoria at 1:36 PM on November 2, 2011
Good follow-up questions -
As a reminder, IANAAccountant!
I don't believe that the poster would be subject to any capital gain issues. Check out Uncle Fed's page on this, details are about halfway down. While some tax laws have changed since this was written, this one has not as far as I know.
It doesn't matter how a donor acquired the items he or she wants to donate, except of course if they were obtained illegally.
Many organizations partner with recyclers to gain money for recycling phones and peripherals. Recycling for Charities partners with numerous organizations - check out their list. Maybe there's a local one you feel close to? I believe the Red Cross does cell phone recycling as well. You could also contact your favorite charity and tell them that you'd like to recycle a bunch of old phone parts and give them the proceeds, and ask them if they have a relationship with a recycler.
posted by juniperesque at 1:58 PM on November 2, 2011
As a reminder, IANAAccountant!
I don't believe that the poster would be subject to any capital gain issues. Check out Uncle Fed's page on this, details are about halfway down. While some tax laws have changed since this was written, this one has not as far as I know.
It doesn't matter how a donor acquired the items he or she wants to donate, except of course if they were obtained illegally.
Many organizations partner with recyclers to gain money for recycling phones and peripherals. Recycling for Charities partners with numerous organizations - check out their list. Maybe there's a local one you feel close to? I believe the Red Cross does cell phone recycling as well. You could also contact your favorite charity and tell them that you'd like to recycle a bunch of old phone parts and give them the proceeds, and ask them if they have a relationship with a recycler.
posted by juniperesque at 1:58 PM on November 2, 2011
I think that "Uncle Fed" link is a copy of IRS Publication 526, which you can read from the source.
The way I read it (and like I say, I'm not an expert and have only just skimmed this), property subject to short-term capital gain is treated for the purposes of the charitable contribution deduction as "ordinary income property" and the deduction is reduced by amount that would have been short-term capital gain. According to the publication, this generally "limits the deduction to your basis in the property". If this applies, then of course the next problem would be to figure out the donor's basis, which is a whole other kettle of fish. It may not apply (that is, the donated property may not be subject to short-term capital gains). My only point is that I think it's somewhat complicated, and for a contribution of this size it'd be prudent to talk with an expert.
posted by lex mercatoria at 2:17 PM on November 2, 2011
The way I read it (and like I say, I'm not an expert and have only just skimmed this), property subject to short-term capital gain is treated for the purposes of the charitable contribution deduction as "ordinary income property" and the deduction is reduced by amount that would have been short-term capital gain. According to the publication, this generally "limits the deduction to your basis in the property". If this applies, then of course the next problem would be to figure out the donor's basis, which is a whole other kettle of fish. It may not apply (that is, the donated property may not be subject to short-term capital gains). My only point is that I think it's somewhat complicated, and for a contribution of this size it'd be prudent to talk with an expert.
posted by lex mercatoria at 2:17 PM on November 2, 2011
Response by poster: I left a message with my accountant today hoping to hear back from him soon. I'll check out the list you posted, Juniper. When I hear back from my accountant I'll let you guys know what he says I need to do in case you're interested.
Thanks for all the help!
posted by Thrillhouse at 5:46 PM on November 2, 2011
Thanks for all the help!
posted by Thrillhouse at 5:46 PM on November 2, 2011
Best answer: The key to this, as lex mercatroia pointed out, is whether this equipment would be considered ordinary income property. Ordinary income property is property that if you sold it, you would pay income taxes on that sale.
For example, if you were an ebay trader and someone gave you that equipment and you typically would sell it on ebay for a profit, that would be a business transaction for which you would pay income taxes. In that case, this is considered ordinary income property. If you instead decided to donate it to charity, then your deduction would be limited to your cost basis (how much you paid for it), which is zero.
On the other hand, if someone gave you a piano as a gift, for example, and then you turned around gave the piano to charity, it would not be considered ordinary income property because you aren't in the business of selling pianos. You could take the full deduction even though you have no cost basis in the piano.
There is a case on record in which a taxpayer acquired a lot of books on discount and then turned around and gave them away to a charity and tried to deduct full market value. The IRS ruled that the taxpayer was effectively a book dealer and the books were ordinary income property, even though the taxpayer had never sold any books.
In your case it is a very gray area. If you were donating a few hundred dollars of electronics, there would be no question. If you are donating $16,000 of electronics, the IRS could claim that you are an electronics dealer, even though you've never previously sold electronics. As usual in these cases, it comes down to how aggressively you want to interpret the IRS rules and how much you want to avoid the possible consequences if the IRS sees things differently.
posted by JackFlash at 8:01 PM on November 2, 2011
For example, if you were an ebay trader and someone gave you that equipment and you typically would sell it on ebay for a profit, that would be a business transaction for which you would pay income taxes. In that case, this is considered ordinary income property. If you instead decided to donate it to charity, then your deduction would be limited to your cost basis (how much you paid for it), which is zero.
On the other hand, if someone gave you a piano as a gift, for example, and then you turned around gave the piano to charity, it would not be considered ordinary income property because you aren't in the business of selling pianos. You could take the full deduction even though you have no cost basis in the piano.
There is a case on record in which a taxpayer acquired a lot of books on discount and then turned around and gave them away to a charity and tried to deduct full market value. The IRS ruled that the taxpayer was effectively a book dealer and the books were ordinary income property, even though the taxpayer had never sold any books.
In your case it is a very gray area. If you were donating a few hundred dollars of electronics, there would be no question. If you are donating $16,000 of electronics, the IRS could claim that you are an electronics dealer, even though you've never previously sold electronics. As usual in these cases, it comes down to how aggressively you want to interpret the IRS rules and how much you want to avoid the possible consequences if the IRS sees things differently.
posted by JackFlash at 8:01 PM on November 2, 2011
Response by poster: Thanks, Jack. I will definitely take that into account. I'm not hung up on writing off any particular amount. If I have to go lower to avoid suspicion I'm happy to do it.
posted by Thrillhouse at 4:27 AM on November 3, 2011
posted by Thrillhouse at 4:27 AM on November 3, 2011
This thread is closed to new comments.
For more details on estimating the value of charitable contributions, you can check out Publication 561: Determining the Value of Donated Property.
posted by RichardP at 10:19 AM on November 2, 2011