Dear Brien,
I understand your concern very well.
You're wise to take the precaution to document
the costs now, while things are still fresh in your mind.
Although, it IS better to make the list BEFORE you
prepare the tax return.
The first thing I tell my clients is to make a list of
all the items donated.
Your page heading is:
Your name and Social Security Number
The name and address and phone number of the charity.
The date of the donation.
Your page should have 5 columns with the following titles:
(1)Item Description (2)Quantity (3)Value When New (4)Donated Value
(5)Source
Make several copies of this page. Use a separate sheet for each
donation
ticket you have.
List each item and the # of units of each.
You may use approximate values for the Value When New.
That's not the important column. Just make sure the values
make some sense.
The governing factor will be the Donated Value, since that's the
amount you deducted.
OK how do we arrive at reliable numbers for this column?
First. Start with the Salvation Army site's Valuation Guide. Print
the whole thing out. Put it in your tax return file for the year of
the donation. IRS will accept values derived from here as reliable.
http://www.satruck.org/ValueGuide.asp
Next, see if any of your items are included in that guide. Do you see
how
the guide shows a range of values - low to high?
Depending on the condition of the item, use a number within that
range.
Make your entries on all your lists. Enter ‘Salvation Army" under
Source
Now, look your list over and see what else you have left.
Here's another list that includes more upscale items, from Small
Business
and Tax Management. (I just happen to know about this one)
http://www.smbiz.com/sbrl007.html
Follow the instructions above. Source is smbiz.com
Be careful though. When you use several lists, make sure that the
other items you've listed don't show up on the new list with a lower
value. This can be a subtle balancing act.
Used Skis? Do a Google search for "skis used' do a subsearch for the
kind of skis
and outfits you donated. Find listings of those items for sale, with
amounts.
Print out those pages and enter the amounts in your list.
These sites have a list of places that sell used skis
http://www.skishoppingguide.com/usedskis.html
http://www.cross-countryski.com/used_skis.html
For each of the unique items you've donated, in all categories,
look for places that have objective values, rather than a private
person's site.
Do this for each branded item you want to substantiate.
There's an interesting software package that claims to also offer
"Audit Protection' Called It's Deductible
http://www.itsdeductible.com
They offer software for around $30.00 . I've never used it, so I can't
tell you how reliable it is.
http://www.itsdeductible2.com/html/products1_detailmp.cfm?CATx=Consumer&SUBCAT=Standard
What I can tell you is, the more hard, objective data you put into
your
file, the less likely you are to lose in an audit.
Here's the fundamental trick:
If you hand a auditor a neatly typed or printed list,
with all the values and sources listed, with copies of
all the printouts you've made to support each item,
they cannot disallow your deduction.
What I usually do during an audit is to make a complete
set of all the lists and documentation for the auditors.
It they have all the hard data to put into the file, their audit
report looks good. I have done half for their job for them.
They look like real pros. Their superiors will approve it.
So, you win. It always works for me.
(Oh yes, one last trick - always be very respectful, polite
and pleasant to the auditor. That does make a difference.)
If I can clarify anything more for you on these donations,
please don't hesitate to ask.
Your TaxMama-ga
Search tips:
1) Salvation Army, do a Google search for Salvation Army, do a
sub-search for
"valuation guide". Click on those results until you get a page with
the list.
(Note: Some of this material came from my copyrighted articles
used to teach tax professionals) |
Clarification of Answer by
taxmama-ga
on
04 Nov 2002 18:38 PST
Dear Brien,
Oh, you poor man, I understand why you are so
frustrated and confused.
Before you get any deeper, tell me, just how much
money are we talking about as total donations of
these personal items? Are we talking about less
than $10,000 for the year? (If so, don't sweat it.)
Yes, this is about tax code. But the tax code does not
require that you prove your cost.
§1.170A-1. Charitable, etc., contributions and gifts;
allowance of deduction
© Value of a contribution in property--(1) If a charitable
contribution is made in property other than money, the
amount of the contribution is the fair market value of the
property at the time of the contribution reduced as provided
in section 170(e)(1) and paragraph (a) of §1.170A-4, or
section 170(e)(3) and paragraph © of §1.170A-4A.
Your basis is either your purchase price, or the cost to whoever
gave you the item as a gift. So, even if you got these things as a gift,
(or someone gave them to you for free) you still have a basis in them.
Taxable basis really only becomes an issue in two cases
1) if you used these skis and things for business and you took deduction
for these items on your business return. Then, your basis is, in fact, zero.
Or 2) if you bought these skis for $200, let's say, and they've
gone up in value to $2,000. That would open up other issues.
You're not dealing with that.
For all practical purposes, in 25 years of IRS audits, no one
has ever asked for proof of the purchase price of a donation.
They have asked for proof of my valuation of donations, if
the donations were quoted in the thousands of dollars.
This was never a problem. After all, whenever my clients
took non-cash donations for that much money, I always
attached a schedule showing the list of items and their
FMV and a copy of anything we used to arrive at the value.
That's where that It's Deductible tool will come into play.
I've been talking to those people some more, since I found
it for you. And their background in establishing values is
pretty extensive. Take a look at their background
http://www.incomedynamics.com/
Income Dynamics is the nation's premier provider of fair
market valuations to the corporate and consumer marketplace.
They even provide a warranty that their valuations will hold up
to IRS scrutiny. So, use their data to provide proof of the value.
Attach a summary of the data to your return.
Use their warranty to back you up in case of audit.
Best wishes,
Your TaxMama-ga
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