Right now, sitting in my garage, I have an unused microwave (works, just doesn’t match the other appliances we had to replace) and a washing machine (works great as an unsightly shelf, not so much as a washing machine). We’ve been planning to donate them to anyone who wants them, preferably to a charity that’ll allow us to take a non-cash charitable deduction. We just haven’t gotten around to it yet.
Most non-cash charitable contributions that I’ve seen consist of a sack of clothes, a worn-out couch, orthe odd appliance. The item’ll be dropped off at Goodwill, they’ll give you a blank slip, and you’ll fill out what you donated with your best guess of its value.
I’ve never seen these get over a few hundred dollars, even on very large returns. And I’ve never seen the IRS make a fuss about them.
US Tax Court Case filed under T.C. Memo 2014-203 gives a hefty warning to what can happen with your non-cash charitable contributions. In it, one intrepid Mr. Smith decides to clear out his mother’s house after her death and donate the old furniture to a good cause (American Veterans National Service Foundation in this case). Take a look at the list:
A dining room set, a china cabinet, a kitchen set, three rugs, six mattresses, five bedroom sets, four televisions, and seven friggin’ sofas.
One of those words isn’t in the original case document. Try to guess which.
All I could think when I read the list was “that’s quite the set up.” Total value, according to Mr. Smith, was $11,730. Not a bad deduction.
While he was getting AMVETS stocked up for Macklemore‘s upcoming visit, he decided to chip in some of his family’s old clothes. I’m going to list his donations vertically for dramatic effect:
153 pairs of jeans
63 pairs of slacks
173 pairs of shoes
Holy cow. Either someone has a really big family, hordes a bit, or really, really likes clothes. I’d rather not venture to guess which one it is. Especially with the shoes.
All those added up to $14,487 in Mr. Smith’s estimation, bringing the total donation to $27,767.
Here’s the thing. If you’re throwing a sack of clothes at the Salvation Army and claim $100 in non-cash charitable contributions, the IRS almost certainly won’t bat an eye. But when you’re contributing approximately the value of a new (cheap model) Audi, an audit is pretty much guaranteed.
That’s where Mr. Smith ran into trouble. The IRS has set rules around how much documentation you need based on what amount you contribute. If you’re under $500, a written note on the back of the napkin will likely suffice. $500 to $1,000 will need a little more guidance, but still not much. Between $1k and $5k will need some pretty good records in place. And if you’re donating over $5k, you better have documentation in place that’ll make Monk jealous.
Mr. Smith had a document signed by an AMVETS worker saying SOMETHING had been received. It could have been $30k of clothing and furniture. Or it could have been a single pair of smelly socks. Since the burden of proof is on the taxpayer, and Mr. Smith lacked any other documentation, the Tax Court assumed it was the latter. Mr. Smith was not allowed to take the deduction and was saddled with interest and penalties.
On the plus side, his house is probably a little bit less cluttered. It’ll probably be even more so with the amount he’ll have to sell off to foot his tax bill.
The moral of the court case is that if you plan to donate a whole ton of non-cash charitable items, make sure you have your ducks in a row. Or, at the very least, be ready to show the court what percentage of your credit card bill is due to DSW purchases. It still might not get you the whole deduction, but they might show you a little pity.