Tuesday, November 8, 2011

Saving Money on Charitable Donations

This post is part of a multi-part series on Saving Money A to Z here at Frugal Follies.

This month, I am doing the Give Away Your Clutter Challenge, where I am getting rid of unwanted items in my household and giving them to charities. I'm doing this not only to get rid of household clutter and to help the charities, but to help myself as well.

As the year ends, it means that doing your taxes is right around the corner. And giving charitable contributions can help lower your taxes, if you are able to itemize. But how do you make sure that you're getting the most deductions possible?

First of all, before I try to deduct something, I make a list of everything that I am contributing.  I take a photo of the contributions, and I always, always, always get a receipt from the organization to which I am giving, which goes immediately into my tax file for that year.

To figure out the I use the ItsDeductible online software from TurboTax.  The software allows you to track all your donations - cash, mileage, and donations.  And it helps give you a value on the items you've donated.  The folks at ItsDeductible have assigned a value for used goods - for goods in good condition as well as in fair condition.  (It does not give a value for items in poor condition, as these items cannot be deducted from your taxes.  So if you have something usable, but in poor condition, you cannot deduct its value.)

Since you have your list of items you donated - and you did make a detailed list, didn't you? - search for those items and enter how many of each item you donated.  The software will the calculate for you the value of your items.

Is your item not in their list?  You can add other items.  But how do you figure out a value?  One way is to go to eBay and search for a similar item.  Then on the left sidebar, click the checkbox for "Completed items."  (You will need to have an eBay ID for this.)  Then you can see how much your similar item was worth to buyers, which should help you figure out a value for your item.

Another method would be to go to a thrift shop, a yard sale, or another place where used items can be purchased, and see how much a similar item is selling for.

You might want to check out the values on items before you donate.  If you feel that the values listed are much lower than what the item is worth, you might want to try to sell it rather than donate.

How much will you save on your taxes?  First of all, if you don't have enough deductible items to itemize, you won't save anything.  I have this problem because I don't have enough mortgage interest to take deductions each year.   I get around this by using an every other year tax strategy, where one year I take the standard deduction and the other year I itemize.  See my tax strategy here. If you don't have enough deductions this year to itemize, you might want to wait on donating your items until the next year, when your deductions might be higher.

If you do itemize, your savings will be based on your top tax rate.  If your top tax rate is in the 25% tax rate, then you'll save 25% of the value of the items. 

Hope this helps you save the most you can on your charitable donations!

For more frugal tips, please check out the bloggers listed on the left sidebar under Frugal Tips Linkups. There are lots of great ideas on each blog and I'm sure you'll find lots of wonderful tips!

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