Charities, Spring Cleaning and Tax Law
What do charities, spring cleaning and tax law have in common? More than you may think. A recent article in The Buffalo News, Springtime Giveaway, explains:
Spring will eventually arrive in Western New York and ignite the annual fervor in many people to reorganize and spruce up their living spaces. And as they declutter and decide to part ways with household items they no longer use, local charities enjoy a steep climb in donations. “We’d like for people to think about us all year long, but spring is our busiest time of our year –our peak season,” said Florence Conti, president/ CEO of Goodwill Industries of Western New York…Local charities are the grateful recipients of the pounds of used items discarded each year during the spring cleaning ritual. The contributions greatly boost their supplies, and in turn, their bottom lines. “We rely heavily on those donations to support our inventory in our stores,” Conti said. “Donations account for 70 percent of our annual revenue.”
Along with the satisfaction of helping such worthy causes, your contributions could also reduce your tax liability. … “The donation of property is a little bit complex,” said Dianne Besunder, an IRS spokeswoman in New York City. “It depends an awful lot on keeping the appropriate records, having a qualifying charity and knowing the value of your donations.”
The article provides a good occasion to highlight a few charitable contribution deduction rules that seem especially important to spring-cleaning itemizers who plan to donate clothes and other household belongings to charity. Section 170(f)(8) of the Internal Revenue Code sets forth substantiation requirements for donations of $250 or more:
(8) Substantiation requirement for certain contributions.
(A) General rule. No deduction shall be allowed under subsection (a) for any contribution of $ 250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph (B).
(B) Content of acknowledgement. An acknowledgement meets the requirements of this subparagraph if it includes the following information:
(i) The amount of cash and a description (but not value) of any property other than cash contributed.
(ii) Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property described in clause (i).
(iii) A description and good faith estimate of the value of any goods or services referred to in clause (ii) or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.
For purposes of this subparagraph, the term “intangible religious benefit” means any intangible religious benefit which is provided by an organization organized exclusively for religious purposes and which generally is not sold in a commercial transaction outside the donative context.
(C) Contemporaneous. For purposes of subparagraph (A), an acknowledgment shall be considered to be contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of–
(i) the date on which the taxpayer files a return for the taxable year in which the contribution was made, or
(ii) the due date (including extensions) for filing such return.
(D) Substantiation not required for contributions reported by the donee organization. Subparagraph (A) shall not apply to a contribution if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe, which includes the information described in subparagraph (B) with respect to the contribution.
(E) Regulations. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations that may provide that some or all of the requirements of this paragraph do not apply in appropriate cases.
Secondly, Code section 170(f)(16) sets forth special rules for donations of clothing, furniture, household appliances, linens and the like:
(16) Contributions of clothing and household items.
(A) In general. In the case of an individual, partnership, or corporation, no deduction shall be allowed under subsection (a) for any contribution of clothing or a household item unless such clothing or household item is in good used condition or better.
(B) Items of minimal value. Notwithstanding subparagraph (A), the Secretary may by regulation deny a deduction under subsection (a) for any contribution of clothing or a household item which has minimal monetary value.
(C) Exception for certain property. Subparagraphs (A) and (B) shall not apply to any contribution of a single item of clothing or a household item for which a deduction of more than $ 500 is claimed if the taxpayer includes with the taxpayer’s return a qualified appraisal with respect to the property.
(D) Household items. For purposes of this paragraph–
(i) In general. The term “household items” includes furniture, furnishings, electronics, appliances, linens, and other similar items.
(ii) Excluded items. Such term does not include–
(I) food,
(II) paintings, antiques, and other objects of art,
(III) jewelry and gems, and
(IV) collections.
(E) Special rule for pass-thru entities. In the case of a partnership or S corporation, this paragraph shall be applied at the entity level, except that the deduction shall be denied at the partner or shareholder level.
Additionally, Code section 170(f)(11) sets forth rules concerning required appraisals for donations of big-ticket items. (Interested readers can follow the link; I will spare you the details of this one.)
JRB