Last week I got rid of some old movies and video games by trading them into Amazon in preparation for a move into a new apartment. The less crap I have to move, the easier it will be. This week I’m getting rid of some old clothes.
We all know that you can sell your clothes at a garage sale, on eBay, or to a secondhand shop like Plato’s Closet. If you’re like me, you aren’t stylish enough to command any amount of money that would be worth your time, so you’ll probably just want to donate the clothes.
Donating clothes is a great way to help out the needy, get a little bit of money in a tax write off, and most importantly, get rid of a bunch of crap that you don’t need.
Will Donating Clothes Give Me a Tax Break?
The most important thing to know about donating clothes to charity is that you will only receive a tax break if you are going to itemize your deductions. If you don’t know what itemizing your deductions means, here is a quick explanation.
Since you need at least $5,700 worth of itemizable deductions to get any tax benefits, you’re going to need a lot of charitable donations, mortgage interest, or additional taxes (property, state, local) to qualify. (note: Unfortunately “itemizable” isn’t a word, which is a travesty. Someone get Webster on the phone for me so we can fix this!)
If you’re like me and you don’t own a house or live in a state with income tax, your only option might be charitable donations. And if you’re like me, you don’t donate $5,700 a year to charity. Well, at least I didn’t until I came up with a master plan to double my charitable donations in one year so I donate enough to itemize, and then eliminate donations the next year. Bingo! I’m at over $6,000 in charitable donations in 2011 and anything I donate above that will increase my deduction even more.
If you are not going to itemize deductions, then either save your clothes for a year when you will itemize, sell them, or just give them away and don’t worry about a tax break.
How to Value Your Donations
Valuing your donations is pretty easy; just let Goodwill or Salvation Army do it for you. Both places have guides that tell you approximately how much certain types of clothing will be worth. Of course this is just a guide, so feel free to adjust the values up or down as you see fit. The valuation should be the fair market value of the item (not the purchase price). For example, what could you have gotten if you sold it on eBay? Just remember that you are on the hook to prove the value of your items if you are audited.
It is also required that you only deduct things that are in “good condition”. Don’t donate clothes with holes in them, and for Pete’s sake just throw your old underwear away. I guaranteed the fair market value of your skid marked tighty whities is $0.00.
It’s a good idea to take pictures of each item you intend to donate and keep them saved on your computer. This will serve as proof of the item’s condition if you are audited. Also make sure to get a receipt from wherever you donate your clothes, which should also be saved and potentially included in your tax returns.
Filing Your Taxes
Once you are ready to file your taxes and take your itemized deductions, you should be aware of forms you may be required to complete. If your total donation is over $500 then you will need to fill out tax form 8283 and include a receipt from the charitable organization. If you have a lot of clothes to donate, or a few very nice/valuable items, you can pretty easily go over this threshold. Don’t be scared though, because it’s not a complicated form and Turbo Tax or your accountant will know exactly how to handle it. Just make sure you get that receipt from the charity where you donate.
If your total donation is worth over $5,000, you will need to fill out the tax form, include the receipt, and include an official appraisal of the value of the goods. Getting an official appraisal will be a PITA and makes donating your clothes more trouble than it’s worth. If you have $5,000 worth of clothes, then pay someone to sell them on eBay for you. It will be much less hassle than donating them and you’ll make a lot more money.
I’m Saving $100 on My Taxes
I took pictures of everything, assigned each piece a value, and ended up with a $400 donation. The reason I got so high is because I’m donating three nice suits that were given to me from my uncle. They were hand-me-downs and never fit quite right, and now that I’ve bought suits that are tailored to my size, I don’t need them.
I’m in the 25% tax bracket, so a $400 deduction will save me $100. BOOYAH!