file9411346624378This comes up every tax season and seems to be something people don’t understand. On Schedule A, for itemized deductions, there’s no such thing as a “$500 standard deduction for non-cash charitable contributions.”

Background

When a taxpayer gives non-cash items to a charity (for example, dropping clothes off at Goodwill), the taxpayer can take a deduction equal to the current value of those items.

If the total of a taxpayer’s non-cash deductions is more than $500, the taxpayer is required to attach a “Form 8283,” and provide additional details about the donations. If the total is $500 or less, Form 8283 is not required.

It’s Not a “Standard Deduction”

Many people, and tax preparers, treat the $500 amount as a type of standard deduction that a person can take even if they didn’t really make $500 worth of non-cash contributions during the year.

The typical conversation goes like this:

ME: You included a Goodwill receipt in your paperwork but the receipt doesn’t have a dollar amount on it, it just says “1 bag of clothes.” How much do you think those clothes were worth?

TAXPAYER: The IRS lets you deduct up to $500 as a standard deduction for that, so just put $500.

ME: I can’t do that unless that bag of clothes was really worth $500. Are you sure all of your old polo shirts were really worth $500? If so, I’ll put $500. Otherwise, we have to put what the clothes were really worth at the time you donated them.

TAXPAYER: Why are you siding with the government instead of me?

Obviously, plenty of people do treat this item as a standard deduction. Plenty of tax preparers too. I once new a preparer who would put $100 on the non-cash contributions line for every client.

There’s more ground that I could cover in this conversation. Like how preparers are constantly being put in a position of being fall-guys for our clients. For example, in the above “typical conversation,” I could legitimately use $500 if that’s what the client says those old polo shirts are worth. But if they get audited, and that deduction is reduced or disallowed, guess who’s going to get tossed under the bus? “Oh, my preparer said it was okay to say my old ratty polo shirts were worth $500. I had no idea, shame on him!!!”

Back to the matter at hand: the deduction for non-cash contributions is based on the value of the items you donated; there is no “standard deduction.”

“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”