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TAX TIP: SUPPORT YOUR NEIGHBORHOOD CHARITABLE DEDUCTION

March 29, 2007

The tax law allows you to get a deduction for donations of property to charities. Congress has tightened up on these deductions in recent years, so you need to make sure your paperwork is in order if you want to take a charitable deduction.

If you deduct a non-cash gift other than publicly-traded securities, and the gift is $5,000 or more, you need to have a signed valuation from a"qualified appraiser" before you can take any charitable deduction. A "qualifed appraiser" is an independent party who regularly performs appraisals for pay who is not related to the buyer or the seller. The appraiser has to give you a signed Form 8323 to attach to your return. Otherwise, no deduction.

Even if you have a smaller gift - say, you gave some clothes to Salvation Army - you still should have your paperwork in order. A Tax Court case handed down yesterday illustrates this. Minneapolatans James and Joan Soholt, like many taxpayers, gave household items to local charities. They carefully avoided round numbers by claiming a deduction for $3,492. They were less than careful in documenting their gift (emphasis added):

We next turn to petitioners' contributions of property. Petitioners introduced receipts indicating they donated clothing and other miscellaneous goods eight times in 2003. These receipts do not list the specific items contributed and simply note that petitioners donated a certain number of bags. Petitioners also introduced a worksheet they prepared when preparing their tax return that purports to list and value more specifically the items petitioners contributed. Mr. Soholt testified that petitioners estimated the value of the clothing they donated at one-half the original cost but also admitted he did not think used clothing was worth half as much as it was worth new. Petitioners did not introduce any evidence supporting their estimated value or regarding the quality of the donated items that would permit us to estimate its value.

While we are convinced that petitioners donated property to charity in 2003, petitioners have failed to provide any reliable evidence of the items they donated or their values. Petitioners are therefore not entitled to deduct any additional amount for charitable contributions of property other than the $89 respondent allowed.

So if you are taking a deduction for bringing bags of clothes to the charity thrift store, make sure you have better documentation than a list saying "5 bags of stuff."

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