In 1917, members of Congress worried that a tax increase imposed to fund America's involvement in World War I would prompt people to cut back on donations to charity. So, along with the tax increase, Congress created a tax deduction for giving.
Ninety-seven years later, the charitable-giving deduction is still with us, providing one of the most straightforward ways to reduce one's income-tax liability — especially for easily valued contributions, such as those made by cash, check, or credit card. But non-cash contributions can be much tougher to value. How much is that Reagan-era suit worth? Or that treadmill that's gathering dust in the basement?
Thrift store guidance
The Salvation Army and Goodwill provide guides for donated items on their websites (see Salvation Army and Goodwill Industries International). However, both contain very limited numbers of items and their valuations span a confusingly wide spectrum with little guidance to figure out which specific amount to use. For example, The Salvation Army says a woman's dress is valued anywhere from $4 to $20. A computer system? Goodwill says it's worth somewhere between $50 and $250.
There's an app for that
Valuing non-cash donations has become easier — and potentially more profitable — in recent years with the introduction of several free online programs and smartphone apps. The leading makers of these tools are the companies that make tax preparation programs for do-it-yourself filers.
- ItsDeductible from TurboTax
You don't need to be a TurboTax user to use ItsDeductible. You can set up an online account that's accessible from your computer or through a smartphone app (iPhone users only). Valuations for the more than 10,000 items in its database are based on average eBay sale prices.
Setting up an ItsDeductible account requires your name, e-mail address, password, security question, tax-filing status, and income bracket. To enter a donated item, you first enter the name of the charity and the date of the donation. Then you choose from 22 major categories, each of which splits into numerous sub-categories.
If you're donating a woman's dress, for example, you start with the "Clothing, Footwear & Accessories" category, choose "Women's Clothing," and then choose among six more specific options. After selecting the one that best describes your item, you make a judgment call as to whether it's of "medium value" or "high value."
If you're donating a computer, ItsDeductible gives you the choice between PC or Apple and laptop or desktop. It even asks you to note the computer's processor speed, and again, whether it's of medium or high value.
ItsDeductible also enables you to track cash donations and miles driven for charitable work (the tool tallying the mileage deduction is based on current IRS guidelines).
One fun feature of ItsDeductible is that it keeps a running tally of your tax savings based on your tax bracket. You can view and print summaries of your donations or import the data directly into TurboTax Deluxe.
- Donation Assistant from TaxACT
As with the TurboTax product, you don't need to be a TaxACT user to use its Donation Assistant smartphone app (Apple and Android). However, you do have to be a TaxACT user to access the tool from your computer.
Valuations for the more than 1,300 items in its database come from an independent company that visits thrift stores to check on prices.
Setting up the Donation Assistant app requires only an e-mail address and password. It then operates in similar fashion to ItsDeductible. Categories split into sub-categories and you indicate whether each item's condition is "good" or "best." You can view summaries on your phone, e-mail yourself a report, or import the data directly into TaxACT Deluxe.
- DeductionPro from H&R Block
You have to be a paid user of H&R Block's Deluxe or Premium tax prep programs to gain access, so we were not able to evaluate DeductionPro.
Which approach is best?
In a comparison of a handful of donated items, Goodwill tended to have the lowest valuations.
Of the two electronic tools tested, ItsDeductible provides valuations on the most items as well as helpful additional tools such as the charitable mileage tracker. Still, if you're a TaxACT user, you may prefer Donation Assistant since it feeds directly into its tax filing software just as ItsDeductible feeds directly into TurboTax.
No matter which approach you use, the valuation standard you're up against is the IRS definition of fair-market value: "The price a willing, knowledgeable buyer would pay a willing, knowledgeable seller when neither has to buy or sell." With such a subjective standard, using a valuation guide can only help your case should the IRS ever challenge your deductions. Always get a receipt from the charity, and it's a good idea to take photos of your donated items as well.
If the value of all your non-cash donations for the year comes to $500 or less, you can enter that amount on Schedule A. If the total is over $500, you have to file Form 8283. If any one item is valued at more than $5,000, you'll need a formal appraisal (unless it was a publicly traded security). There are special rules that apply to donated vehicles as well.
Chances are good that the items you donate are worth more than you think, and with several easy-to-use valuation tools freely available, there's no reason not to claim the full, fair value on your tax return.