Clean Out Your Closet for Charity to Maximize Your Itemized Deductions
While the end of the year is a time to relax and make precious memories with loved ones, it’s also when you finally have a few days off from work. And with that time away from the workplace, you may want to clean out your house and figure out what you can donate to charity to start the new year off right.
Getting rid of items you don’t use and gifting them to a charitable organization is a win-win all around. But how should you go about it, and what donations are tax-deductible? We’re here to help you understand how charitable contributions and deductions work when it comes to your tax return.
What charities qualify for a tax deduction?
First, you’ll need to make sure that your donations are going to a tax-exempt organization. You can find out if your charity qualifies by running a Tax Exempt Organization Search on the IRS’s website and searching by name or employer identification number. If you’re donating clothing or other household goods, for example, places like Goodwill and Salvation Army would qualify.
How to value clothes for charity donations to get a tax deduction
The next thing you’ll need to do is figure out the fair-market value of the goods you’re donating — in other words, the price people might pay for your items in a thrift shop. You may want to get your items appraised if they are in less-than-good condition and you want to claim them for more than $500 in value. If you donate more than $5,000 worth of your used goods in one year, you may also want to get them appraised. Once you figure out the value of your items, be sure to document the number somewhere.
Rules you need to follow to write off charity donations
When donating to charity to get a tax write off, it’s important to remember that this tax break only applies to those who elect to itemize their deductions on their tax return. If you take the standard deduction, you won’t qualify and may be better off making a cash donation to charity instead.
When you donate the items to charity, make sure you get a receipt for tax deduction purposes. If you want to claim a noncash contribution that’s worth less than $250, the receipt needs to include the charity’s name, the location and date, and a description of the items you donated. If your donation is worth between $250 and $500, the receipt should say whether you received any goods or services in exchange for your donation.
How to note charity donations on your tax return
Once you have the fair market value and a receipt from the charity, you can decide if you want to itemize your deductions or take the 2021 standard deduction. If you are single, that amount is $12,550, if you are married filing jointly, it’s $25,100, and if you are filing as head of household, it’s $18,800.
On Schedule A of Form 1040, you can itemize your deductions. If the value of the items you’re donating is over $500, then you’ll also need to attach Form 8283. Be prepared to write out a description of what you donated, when you donated the items, and to whom you donated them.
The bottom line
Cleaning out your closet for charity can be a great way to maximize your itemized tax deductions. As you gather items for charity, make sure you note the value of each item and find a tax-exempt organization to take your donations. When dropping off your items, be sure to get the proper documentation including a receipt and file the appropriate tax forms to receive your deduction.
With a little planning, donating your good quality unused items can be another way for you to give back during the holiday season – and get back something in return!
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