When you donate money to charity, determining your tax deduction is typically very straightforward. In most cases, you can simply deduct the amount you gave to the charitable organization, less any goods or services received in exchange for the donation.
But when you donate items to charity, how do you know how much to deduct on your tax return? For most items, you’ll want to determine the fair market value (FMV) of the item and then deduct that amount when you file your taxes. But how can you figure out what the FMV of an item is? There’s no one right way to do so. Here are a few possible methods:
- Research the fair market value of the item by visiting local second-hand shops or reviewing classified ads. Make sure you’re comparing similar items in like condition for the most accurate valuation.
- Use an online guide. Many large charitable organizations such as Goodwill and The Salvation Army publish online lists for you to use as a guide when valuing your donation.
- Consult with a professional appraiser. For items whose value may have appreciated since they were acquired (think jewelry, artwork, and collectibles), seeking out professional valuation is highly recommended. In fact, if an item’s current value is greater than $5,000, a professional appraisal is required if you plan to donate the item and claim it as a tax deduction.
Be aware that there are special rules for donating a vehicle to charity, so the FMV is typically not the amount you can deduct when you donate a car or truck. You’ll want to talk with a tax help professional prior to donating a vehicle to help maximize your deduction.
As always, feel free to contact Taxation Solutions, Inc. with any questions you have. We can help you document charitable donations, substantiate donation values during an audit, and more! Just call today!