Answering Fort Worth Residents Tax Question about Non-cash deductions on IRS form 1040-Schedule A

Gregory S. Simpson is a Certified Public Accountant (CPA) who is the founder of Gregory S. Simpson and Associates P.C., a CPA firm located in the suburbs of Fort Worth in North Richland Hills, TX. Gregory S. Simpson and Associates specialize in accounting work, tax consulting and business and individual tax returns.  Greg has over 40 years of accounting experience and over 30 years as a professional CPA. He answers questions from time to time for the residents of Fort Worth on tax related issues.   

Question: How to account for non-cash contributions (i.e. clothes, purses, shoes, etc.) on my tax return?

This is a great tax question that I have been asked many times in my tax career. The scenario below may seem familiar to you; you drive out to a charitable organization which accepts non-cash donations (i.e. clothes) and you either leave your donation curbside or you give an employee of the charitable organization your non-cash contributions. In return, you will make a note of what you donated or write down the value of the donation on a receipt the charitable organization handed to you.  Eventually that information will need to be placed into your IRS tax form 1040, schedule-A.

This paragraph is where our readers should take note. When a tax payer finds out that they may be able to reduce income taxes paid to the IRS by contributing a noncash item(s) to a charitable organization, the item(s) they contribute almost always seem to increase in value since the time they purchased the item(s), when actually most item(s) contributed usually decrease in value from the time they were purchased. To prevent assigning arbitrary values to non-cash items donated, the IRS has put together some guidelines for taxpayers to follow.  It is possible that if values are recorded incorrectly this could raise a red flag to the IRS and cause your return to be audited. Below, I will try to touch upon some of the standard guidelines the IRS and the 1040 Quickfinder Handbook recommend to follow when making noncash contributions.

1.)    Get the name and address of the charitable organization

2.)     Date and location of the charitable contribution

3.)    Reasonably detailed description of contributed property

4.)    Fair market value and method of valuing the property.

5.)    Cost or other basis of the property if Fair Market Value (FMV) must be reduced.

For a contribution of:

• $250 or less, a receipt is not required where it is impractical to get one (i.e. unattended dropsite).
• $250 to $500 requires you to have written acknowledgment from the charitable organization. Acknowledgment must contain the items listed one through four above in addition to stating if any goods or services were provided to the donor in return for the contribution.
• $501 to $5,000 requires the same list as above ($250 - $500). In addition, the tax payer must show how the property was acquired, the date acquired and the adjusted basis of the property. If the taxpayer is unable to provide the basis of the property or the date of acquisition, an explanation should be attached to the tax return. 
• $5,000 or more, the same requirements above ($501-$5,000) apply.  Most contributions over $5,000 require a written appraisal.

Thomas Routers (2008). “5 SCHs A&B” 1040 Quickfinder Handbook, 5-12.

For more information, about non-cash deductions, other tax questions or tax advice, please contact us, Gregory S. Simpson & Associates P.C. at 817-656-3397or by e-mail at admin@gregoryssimpson.com.