At the end of every tax year, like somany others, I find myself trampingdown to the big yellow Good Will semiparked at the back of the mall bearingbags of the cast-offs, the obsoletes, andthe â€œWhat was I thinkings?â€ I dutifullymake a detailed list of the donations,attach a valuation of what the item originallycost, and obtain a receipt from thecharity. The same process applies to all ofthe worthy charities such as the SalvationArmy, St. Vincent de Paul, etc, that thecommunity supports with so-called â€œinkindâ€ or noncash contributions.
Getting It Together
Tax timeâ€”when you pull out yourrecords to receive a tax deductionâ€”iswhen things get interesting. Dependingon how conservative your CPA is, orwhat you've heard from multiple nonauthoritativesources (such as this column),you can dutifully deduct somepercentage of the valuation you documentedfrom your 1040 at tax time, sayanywhere from 5% to 30%. Or you canfind what typical items will be worth tothe charity upon their resale by askingthem. And you should hope push doesn'tcome to shove, if you get my meaning.
When it comes to the recently popularpractice of donating vehicles, beespecially careful. The IRS has the sameBlue Book you do but will certainly casta squinty eye at your cream puff claimsabout having driven old Betsy only onSunday to church for 150,000 miles.And you can bet their adjustment is notlikely to be in your favor. Likewise, anyother item like an antique or a piece ofart valued over $5000 must be accompaniedby an expert, independentappraisal that will bear scrutiny by theIRS' own appraisers. The list of audit-trashedoptimistic valuations is unfortunatelya long and bitter one.
Keep in mind that when it comes tocharitable contributions of any kind,even cash, you only get some tax bene-fit if you itemize. And if you are in a relativelylow tax bracket, your net benefitis correspondingly smaller thanthose folks in a high bracket. So, if youtake a standard deduction or are in alow tax bracket, your rewards for yourgenerous giving will be limited to awarm glow and spiritual comfort.
Also note that donated services,such as medical care, as valuable as theyare to donor and recipient alike, haveno standing for a tax deduction. TheIRS' reasoning is that you can't deductfrom income you didn't receive. No economicbenefit here.
I'll close with a true and cautionarytale about the value of donated services.A prominent Los Angeles area countryclub requires that each member donate10% of their often hefty annual incometo charities of their choice and documentthe fact. A famous comedian, now deceased,once submitted a list of charitybenefits that he had performed at forfree, in lieu of actual money contributions.The club's board said no dice;donate cash or play golf elsewhere. Thecomedian reasoned and argued, but inthe end, he paid. So do we all.
Jeff Brown, MD, CPE, a practicingphysician who is a partner onthe Stanford University GraduateSchool of Business Alumni ConsultingTeam, teaches in the StanfordSchool of Medicine FamilyPractice Program. He welcomes questions orcomments at email@example.com.