Monday, February 22, 2010

Thirfty Tax Time from Mr. Golightly

It’s that time of year. Tax time. And with it comes the joy of claiming charitable deductions, covering everything from that Picasso you gave to the homeless shelter to the piles of gently-used stuff you donated to Goodwill.

I did my duty and purchased my copy or TurboTax in late January with the best of intentions. I hate going through the motions of doing taxes, even though we keep pretty good records throughout the year. It’s almost as if I don’t need the darn software.

Except for one thing. In the past I had no idea how much to claim for donations. A check for $100 to Our Lady of Perpetual Procrastination is pretty easy to figure out. Deductible! Cha-Ching! Buying Girl Scout cookies? A bit of a head-scratcher, I still haven’t gotten ‘round to Googling that one (see perpetual procrastination).

Years ago, TurboTax allowed you the honor of purchasing an add-on, about as expensive as the base software called “It’s Deductible”. Turned out to be worth it, though it’s bundled with the product now.

Mrs. Golightly keeps record of what we’ve donated throughout the year with receipts neatly tucked in a manila folder until my avoidance hibernation is over. When I get to the part where I enter the charitable deductions, I actually look forward to it. Why? Because I don’t have to make up numbers!

The good people at TurboTax/Intuit have teamed up with the fantastic folks at the IRS to determine exactly how much a gently-used Cabbage-Patch doll is worth. Business Wire said “ taxpayers have the legal right to deduct the "fair market value" of their donated items. (IRS Publications 526 and 561) However, determining the accurate fair market value is no easy task. As a result, most taxpayers often guess conservatively, perhaps valuing a bag full of donated items at only $50 when the actual value could be $300 or more. Ultimately, the result is overpaid taxes.” My tax program helps me properly value from thousands of items – often more than I thought they were “worth”.

We probably donate 6 separate times throughout the year. In years past, we accrued too much stuff, and over time we realize what gets used and what doesn’t, what’s redundant, and what’s outgrown. One friend of mine put on her Facebook status that she’d donated over 350 items to ARC in the past year. Good for her. And I hope she gets rewarded handsomely. There is no shame in benefiting from generosity, and besides, it’s not a political contribution. Thrift stores are equal-opportunity.

Obviously, donating items is not about financial gain, but it’s sure a nice bonus you’re entitled to. By itself a nice tax deduction not the reason to give, and it’s not what The Thrifty Chicks is about. But it sure doesn’t hurt. One year our charitable contributions were almost $2000. That’s not what I said it was worth. It’s what Uncle Sam said it was worth, and it was all done in good conscience.

We shouldn’t need financial incentive to give what we no longer need, or to recycle what is salvageable. It’s the right thing to do. Getting a tax deduction for doing so is more icing than cake.

A word to the wise. The IRS treats donations toward the end of year as less deductible, so donate early and often.

In response to Mr. Golightly's excellent points on donating and tax

Keep in mind that donating to charitable thrift helps build the inventory. This is especially significant in communities where the reuse market is weak. If citizens of these communities all donated gently used items they really don't use or need, -we all know those items are out there- it will build up a stronger reuse market with more people participating.

So if you live in an area that needs a push, start the donation process from your own home and encourage friends and neighbors to do the same. Hopefully this will build the inventory that attracts enough interest in reuse to start a sustainable cycle of products for the charitable thrift to become more attractive.

10 comments:

kpaints said...

Thanks for the heads up. I donate several times a year and honestly don't really keep track as well as I use to and then to find out that items are worth more (according to the IRS) is a real shocker! But worth less at the end of the year? How is that possible? You wore them 6 months longer? Or you needed donation deductions so bad that it was really trash? Hummm....not sure I will ever understand the IRS's thinking.... loved your post. A good reminder to donate year round, as there is need year round!

Anonymous said...

You can actually get the same information for free by going to itsdeductible.com and logging in your donations.

Daisy said...

"donating items is not about financial gain, but it’s sure a nice bonus" -- exactly. It's great to clean out the basement and the closets; the deduction is the icing on the cake.

Shopping Golightly said...

Daisy I agree. If you cannot afford substantial monetary contributions to charities why not donate items you don't need or no longer use AND shop the stores too? That makes a difference.

Mr. Golightly said...

kpaints and Anonymous (first 2 comments) made some good points.

First, I suspect the IRS doesn't want to promote a deluge of donations at the end the year - they might actually have a soft spot in their heart to incent us to donate year 'round. Keeps the supply more even.

Second, Anonymous is correct in stating that itsdeductible.com (and other online tools) can help you calculate how your donations can count as itemized deductions. Many people file online - you can even do a TurboTax totally online, same with other services.

Charitable giving is deductible to the same extent as mortgage interest in terms of reducing your taxable income.

Keep the suggestions coming. Keep giving, and keep being guilt-free about any deduction you're entitled to. Deductions for donations are part of the system that repurposes good and lives.

Bee Balm Gal said...

I am glad to see you address the topic of charitable giving. This recession has hurt virtually every charity, church, and non-profit in our neck of the woods. While I am not a tax expert, I know that with good planning and good record keeping, you can help your favorite causes with donations of your time and your goods and still get some tax credit for your efforts. Did you drive to help with home-delivered meals? The IRS allows you to make deductions for your mileage. Did you donate your old printer to your church? That, too, can be deducted.
And even more important than the benefit of tax deductions, our volunteered time and donations makes our communities better places. Just like being green and thrifty does:)

Brandy said...

I never bother to get receipts when I donate itmes, and we do it about 10 times a year or more. Guess I should do that next time! I hadn't thought it meant much, but now you've got me thinking baout the numbers. We've already donated once this year to our local thrift store; I guess next time I'll make sure to get a reciept!

Christi said...

I had no idea that it mattered what time of year you donated items! My main goal in donating is usually to help, but it's nice to know this aspect of it as well. We have some set aside to donate to church/charity each month, but beyond that we're limited to what we could donate monetarily. It's great to be able to donate items and know they're helping, instead of sitting unused in our house.

Glenn Family Gardens said...

Hey great blog! I looove thrifting. If you get a chance to visit my blog please do :)

Leslie @ GlennFamilyGardens

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