New Rules Make Tax Deductions Harder -- I May Be Giving Less As a Result

There are some new tax rules that may make deducting gifts to charities harder or easier -- depending on what exactly you're trying to do. First, here are a couple new rules that make it harder to get a tax deduction for a gift:

The Internal Revenue Service may deny deductions for donations of clothing or household items -- furniture, appliances, linens, electronics and similar items -- that aren't in "good" condition.

Any significant household item, valued at more than $500, must be appraised before the taxpayer can take a deduction.

Another new rule requires that taxpayers who deduct cash donations have a receipt or bank record, such as a canceled check, to prove the gift. Instead of placing a few dollars in the collection plate, donors might want to write a check.

This is a real bummer. Charities like these rules because they will keep people from donating junk, but for those of us who regularly contribute good stuff, it makes giving more of a hassle. In particular, I'm not going to take the time and effort (much less the cost!) to have a good item worth more than $500 appraised -- I'll simply give it to a friend (who may or may not be as needy as someone at a charity).

And so much for giving cash in any decent amount. If I don't have a checkbook, I can't see giving over a few dollars.

This seems to penalize people for trying to be generous. In my opinion, instead of the charities gaining by discouraging people from giving junk, they'll end up losing more because legitimate donors won't want to deal with the rules/hassles.

There is a positive, new law related to giving and taxes:

Charities are lauding a temporary break that lets taxpayers age 70 1/2 or older contribute up to $100,000 directly from an IRA to charity without paying tax on the money.

United Way of America estimated that the tax break may generate an additional $400 million in new giving to the charitable sector over its two-year lifespan.

This seems to be a win all the way around -- both for charities as well as retirees who are looking for ways to maximize their transfer of assets to charity. Too bad the other rule changes can't be win-wins for all.

Comments

[JB]

You said...

"I'm not going to take the time and effort (much less the cost!) to have a good item worth more than $500 appraised -- I'll simply give it to a friend (who may or may not be as needy as someone at a charity)."

This doesn't make any sense to me. If you are going to forgo the tax deduction by giving it to a friend, why not forgo the tax deduction and give it to someone who is in greater need? If you are giving to charity only for tax deductions (which I assume you are not), there are better ways to get a return on your money than spending $1 for a ~$.33 deduction.

This article illustrates the larger problem - the tax code is too complicated. We should eliminate this attempt at social engineering and adopt a better system, such as the fair tax (http://www.fairtax.org).

[FMF]

JB --

You said:

"If you are going to forgo the tax deduction by giving it to a friend, why not forgo the tax deduction and give it to someone who is in greater need?"

Here's why:

There's usually a cost to giving it to a charity -- having to deliver it to them (which can be difficult if the item is larger -- which something over $500 probably is -- and takes time (which is very valuable to me)). A friend will come pick it up and not cost me any time or effort.

[annab]

I don't know if it helps, but when I donated a large item to charity, they had someone on site give the appraisal. The charity put the value on my reciept for future use. So it may be that it doesn't require the appraisal to be professional.

[FMF]

Good tip. If that's the case, then there's no problem for me.

For some reason, I thought I needed a "professional" appraisal from an outside source.

[mapgirl]

I am horrified by these new rules. When Kay at Don't Mess with Taxes first mentioned this, the first thing that leapt to mind was putting pocket money into the collection plate at church.

I'm not a regular church goer anymore, but when I was in college, I'd always forget to bring money for the plate and so whatever I had in my pocket went in. My folks got envelopes with their information on it from our church and that way the church administrators could issue you a statement tracking your donations for the year, which is rather nice, but I am sure it's costly. Just getting the envelopes printed for every church member is a big cost. Honestly, having to prove by check that you made a donation is really kind of an insane administrative burden on charities and even a nice normal charitable person like yourself is thinking of altering your giving habits to give away less, not more. I think that's the wrong sort of outcome of this legislation. I wonder if that was the intent.