Non-Cash Charitable Contribution
I was engaged by a new client to represent him in an IRS audit for 2019. FYI, the IRS loves auditing the prior year so they can open the current year if they find something. In this case they did open 2020 and it had absolutely nothing to do with what triggered the audit for 2019. This audit was due to the amount claimed as non-cash contributions. My client wrote off $39,000 in non-cash contributions. Yes, I know that we all wear designer clothes, and those Tory Burch shoes aren’t cheap, but if you claim a non-cash contribution on your tax return of $5,000 or greater, you best get an appraisal.
Property contributions over $5,000, with certain exceptions, have strict guidelines. Taxpayers must obtain a qualified appraisal by a qualified appraiser to document the donated property’s value. There are some exceptions to this rule:
- A car, boat, or airplane if it is limited to the gross proceeds from its sale
- Stock in trade, inventory, or property held primarily for sale to customers in the ordinary course of business
- Intellectual property (i.e., patent, copyright, trademark, or trade name, etc.)
- Non publicly traded stock valued at $10,000 or less
- Certain securities considered to have market quotations readily available
- “Qualified contributions” of inventory donated by a corporation for care of the ill, needy, or infants
Now you say you donated $10,000 worth of clothing, books, etc. to multiple charities, would that still need an appraisal? The answer is yes. All the gifts made in the same category (clothes, books, furniture), get claimed together and if they exceed $5,000 they need a qualified appraisal.
Failure to get a qualified appraisal can result in you not being able to claim any of the charitable deduction. Protect yourself and audit proof your non-cash deductions. Below are a few examples that can help you:
- Take pictures of your donated items. This doesn’t mean you have to take a picture of each shirt or each pair of shoes. You can lay them out on your bed or floor and snap a few pictures.
- Keep a record of the items donated and their donated value. You can go to Goodwill or Salvation Army as they have wonderful lists of what the Fair Market Value is of your item.
- If your total amount of donations exceeds the $5,000 mark, remember to get an appraisal prior to filing your return.
If you have any questions our team is ready to help you!