Help me figure out how much I owe the taxman
April 5, 2012 10:22 AM Subscribe
Bought a lot at the school charity auction. How do I figure how much to deduct on my taxes?
Background: Each year our kids' school PTA holds a charity auction. They are a 501(c)3 organization so tax deductions of donations are allowed.
My wife and I bought many items, some were bargains bought for less than stated value, some not. The auction receipt shows each of our items with the price paid, and states a value for each item. So how do I calculate my tax deduction properly?
I say: Tally up the values of all the prices paid, subtract that from the total value of all items, and you have your donation number.
My wife says: Just tally up the values of all the items bought above stated value, subtract the stated values, and you have your donation number.
Additional complication: we bought a gift certificate far below stated value, but never redeemed it, and it has now expired. Do we count the whole thing as a donation, or do we have to use the value as stated on the receipt?
I know you are Not My Accountant, but opinions from anyone well versed in these matters would be appreciated.
Background: Each year our kids' school PTA holds a charity auction. They are a 501(c)3 organization so tax deductions of donations are allowed.
My wife and I bought many items, some were bargains bought for less than stated value, some not. The auction receipt shows each of our items with the price paid, and states a value for each item. So how do I calculate my tax deduction properly?
I say: Tally up the values of all the prices paid, subtract that from the total value of all items, and you have your donation number.
My wife says: Just tally up the values of all the items bought above stated value, subtract the stated values, and you have your donation number.
Additional complication: we bought a gift certificate far below stated value, but never redeemed it, and it has now expired. Do we count the whole thing as a donation, or do we have to use the value as stated on the receipt?
I know you are Not My Accountant, but opinions from anyone well versed in these matters would be appreciated.
See IRS publication 526, which states: "If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive."
Your charitable deduction is limited to the premium you paid above FMV; if you got a bargain, you have not made a charitable donation. Again, Publication 526: "At a fund-raising auction conducducted by a charity, you pay $600 for a week’s stay at a beach house. The amount you pay is no more than the fair rental value. You have not made a deductible charitable contribution." (emphasis added)
I am not your lawyer or accountant and this is not tax, legal, or accounting advice. Consult your own tax, legal, and accounting advisors.
posted by Admiral Haddock at 10:44 AM on April 5, 2012 [3 favorites]
Your charitable deduction is limited to the premium you paid above FMV; if you got a bargain, you have not made a charitable donation. Again, Publication 526: "At a fund-raising auction conducducted by a charity, you pay $600 for a week’s stay at a beach house. The amount you pay is no more than the fair rental value. You have not made a deductible charitable contribution." (emphasis added)
I am not your lawyer or accountant and this is not tax, legal, or accounting advice. Consult your own tax, legal, and accounting advisors.
posted by Admiral Haddock at 10:44 AM on April 5, 2012 [3 favorites]
What Admiral Haddock said: The donation happened when the entity who gave the item to be auctioned gave that item. Unless you were spending more than the fair market value, you were simply buying that item.
posted by straw at 10:54 AM on April 5, 2012
posted by straw at 10:54 AM on April 5, 2012
He did pay more than Fair Market Value in some cases, but did not in other cases, and is trying to determine if he should treat all the items together as a single purchase with one FMV and one price paid, or if he should treat each individual item as its own purchase when comparing FMV to price paid.
posted by jacquilynne at 10:56 AM on April 5, 2012
posted by jacquilynne at 10:56 AM on April 5, 2012
For two reasons, I think your wife is right.
1) From the charity auction IRS page linked by Nimmie Amee: "Donors who purchase items at a charity auction may claim a charitable contribution deduction for the excess of the purchase price paid for an item over its fair market value." It says "an item," not "the items."
2) If you go to a charity auction, and buy a single item for less than what the PTA estimated the fair market value to be, there are no tax consequences. Therefore, it seems that there should be no tax consequences for that purchase if you also happen to buy another item for more than the estimated value.
Also, from a practical standpoint, I wouldn't worry about it too much. I assume we're talking about a few hundred dollars or less, or at most a few thousand. The chances of your being audited are slim to none, and if you are, I can't imagine there would be much if any penalty if you happen to misinterpret a very subtle aspect of tax law. (Thoughts from real experts are welcome - I'm just guessing.) In other words, I wouldn't spend any money on an account or lawyer.
posted by Mr.Know-it-some at 11:16 AM on April 5, 2012
1) From the charity auction IRS page linked by Nimmie Amee: "Donors who purchase items at a charity auction may claim a charitable contribution deduction for the excess of the purchase price paid for an item over its fair market value." It says "an item," not "the items."
2) If you go to a charity auction, and buy a single item for less than what the PTA estimated the fair market value to be, there are no tax consequences. Therefore, it seems that there should be no tax consequences for that purchase if you also happen to buy another item for more than the estimated value.
Also, from a practical standpoint, I wouldn't worry about it too much. I assume we're talking about a few hundred dollars or less, or at most a few thousand. The chances of your being audited are slim to none, and if you are, I can't imagine there would be much if any penalty if you happen to misinterpret a very subtle aspect of tax law. (Thoughts from real experts are welcome - I'm just guessing.) In other words, I wouldn't spend any money on an account or lawyer.
posted by Mr.Know-it-some at 11:16 AM on April 5, 2012
I second straw - all you did was purchase items, not make donations. If I'm reading this correctly, each item was bid on by multiple people - so I'd say the winning bid is the fair market value, given that more than one person was willing to pay close to that amount. Isn't that the definition of FMV, is that it's what people are reasonably willing to pay? The stated values on the sheet they gave you are probably akin to an MSRP - a number that looks nice but in most cases has no bearing on the actual sale price of an item.
Even if there's an argument to be made for this to be considered a tax donation, the expired gift card doesn't matter - the unused balance is for the store or restaurant where it was to be redeemed; the PTA didn't get any additional benefit because the balance went unused.
posted by trivia genius at 1:09 PM on April 5, 2012
Even if there's an argument to be made for this to be considered a tax donation, the expired gift card doesn't matter - the unused balance is for the store or restaurant where it was to be redeemed; the PTA didn't get any additional benefit because the balance went unused.
posted by trivia genius at 1:09 PM on April 5, 2012
This thread is closed to new comments.
The relevant IRS publication is 526. You might also find this charity auctions publication useful.
You can actually call the IRS about these questions, I would contact them to ask which interpretation is correct, which is what I advise donors to do in such situations.
posted by Nimmie Amee at 10:38 AM on April 5, 2012