The majority of clients we assist with tax filing and planning claim a deduction for charitable contributions. This deduction is fairly simple to claim if you make only cash-based donations to charities and other qualifying non-profits. However, if you make any non-cash donations—either of physical items or of stocks—this deduction can get quite a bit more complicated. Here is some of the basic information you should know in order to claim a non-cash charitable contribution. If you need further assistance with claiming this deduction, contact Biesinger & Kofford CPAs for tax help in Provo.
Determining the Property’s Value
When you make a cash donation, there’s no guesswork involved in reporting the amount you’ve donated. But when donating non-cash items, you will need to calculate the fair market value (or FMV) of the property in order to claim it on your tax return. The FMV is defined as the price that the items would have sold for on the open market, considering their age and condition.
As an example, let’s say you dropped off a bag of clothing and other household items at a donation box for a local charity, or at a secondhand store. Because the items were used, you cannot claim the amount that you paid for the items when they were new. Rather, you can only claim the amount you might have received if you’d resold the items at a yard sale, or the price that someone might pay for the items when purchasing them from the secondhand store.
If you’re donating stocks, the FMV of the donated shares is calculated based on the price per share on the date of the contribution. So, if the highest selling point for your stock was $11 on the day you donated the shares, and the lowest selling point was $9, the FMV for your donated stock would be $10 per share.
When claiming any deduction for charitable contributions, it’s important to have the right documentation. If you’ve donated more than $250 worth of non-cash items, you must retain some form of receipt or a written acknowledgment from the organization that states the estimated value of your donations. This should also include a written description of the items you donated. Obviously, it’s difficult to receive such a receipt from a donation box, which is why we recommend that you make donations of used goods directly to the secondhand store or the charity’s physical location, so that you can request a receipt.
For example, Deseret Industries (DI) is a well-known non-profit organization to which many of our Utah tax clients make regular donations. When dropping off items, you can get a receipt from the employees, which is signed and dated, and has several blank lines where you can write out what you’re donating and the value of those items. You should always take one of these receipts when making a donation, fill it out as completely as you can, and retain it for your tax records.
If the items you’re donating have a FMV of over $5,000, you may need to get an official appraisal of the property, and attach the appraisal to your return. This is common when donating used cars to charities.
Non-cash charitable contributions are a delicate matter when it comes to claiming a deduction, and require precise documentation to qualify. If you have any questions regarding your charitable contributions and how you can claim them on your tax return, contact Biesinger & Kofford CPAs for expert tax help in Provo.