Every year we have several clients who decide to donate items of personal property to a charitable organization. This is a highly honorable choice that does come with some financial benefit. However, there are multiple factors that go into making a charitable contributions and ensuring that the donation is properly accounted for on your tax return (please consult your tax attorney or accountant for more details). There are two main steps that go into making a charitable donation:
- – Selecting the appropriate organization
- – Attaining a fair market value appraisal report for charitable donation
Once a patron has decided to donate property she must choose the organization that she would like to donate to. The I.R.S. has specific guidelines for what constitutes a charitable organization, and patrons must choose an organization that fits within these guidelines in order to claim their donation as a deduction on their tax return. Don’t worry, we are here to lend our expertise.
Generally, the five types of organizations acceptable for charitable donation are:
- – A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any territories of the United States (including Puerto Rico). It must be organized and operated only for one or more of the following purposes: Religious, Charitable, Educational, Scientific, Literary and/or The Prevention of Cruelty to Children or Animals.
- – War veterans’ organizations including posts, auxiliaries, trusts or foundations organized in the United States or any of its territories.
- – Domestic fraternal societies, orders and associations operating under the lodge system.
- – Certain nonprofit cemetery companies or corporations.
- – The United States or any state, the District of Columbia, a U.S. territory (including Puerto Rico), a political subdivision of a state or U.S. territory, or an Indian tribal government or any of its subdivisions that perform substantial government functions.
Donating personal property items to a viable charitable organization is a great financial decision! In most cases, you can deduct the full fair market value of items you have donated on your tax return (please consult your tax attorney or accountant to discuss your particular financial position). This means that you will be getting the value of your items paid back to you in the form of a larger tax refund or a smaller payment. Donating your items also ensures that you will receive the absolute fair market value for your personal property; this is important because if the items were sent to an auction house the outcome would be variable and the items might be sold for much less than they are worth.
The I.R.S. states that when donating “property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution.” Remember that Fair Market Value is “the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.”