These days, when people think of donations, they may not only think in terms of cash or checks. Non-cash donations such as canned goods, clothing, electronics and volunteer time are a common currency in society. Some of these non-monetary donations can be deducted from tax returns as long as one follows the proper procedures such as filing IRS Form 8283. The first step to reporting these contributions is choosing a qualified organization that is verified as having a tax exempt status. Not all groups accepting donations are able to issue an acknowledgement of receipt that allows for tax deductions. It’s always a good idea to ask if a charity is able to provide such a letter when expecting a tax deduction after donating.
Itemizing deductions on Schedule A of IRS Form 1040 works for most small donations, but when the donations are not cash and are worth over $500, an individual must file by submitting IRS Form 8283, Section A. Donated property can be vehicles such as cars or boats, art, real estate, or equipment. If those donations total greater than $5,000, professional appraisals are required to denote the fair market value (FMV) of that property. The former owner of said property must then fill out IRS Form 8283, Section B and attach both forms to their income tax return. The appraiser is required to fill out Section B, Part III of that form. They must also have an authorized signer for the qualified organization fill out and sign part IV of Section B of the form.
Recently, the Treasury Inspector General for Tax Administration (TIGTA) issued a report showing that many taxpayers are incorrectly claiming charitable deductions. This has caused an estimated $1.1 billion reduction in tax. TIGTA has recommended that the IRS increase its efforts to identify tax returns claiming noncash contributions that do not include IRS Form 8283 with the return. Mistakes on returns can be costly and can quickly lead to tax debt from penalties, fees, and interest. Contact a tax professional to avoid these expensive mistakes and to ask tax-related questions when any doubts arise.