Dear Client:

As the year winds down, many of our clients look toward clothing and household item donations as a means to give back and optimize tax deductions.

Recent cases, such as the one involving Duncan Bass, highlight the importance of understanding and following the IRS regulations concerning these contributions.

Mr. Bass made a staggering 172 trips to Goodwill and the Salvation Army, cleverly keeping each donation receipt below the $250 threshold. Unfortunately, he overlooked the aggregation of similar items and appraisal rules.

But before getting to aggregation and appraisal, what is the $250 rule? If you make a single charitable contribution of $250 or more, you must obtain a written acknowledgment from the charitable organization to substantiate your deduction. This is often called a “contemporaneous written acknowledgment.”

• It must confirm the amount of cash or a description of any property contributed by you.

• It must state whether the charity provided you any goods or services in exchange for the gift. If so, it must provide a description and a good faith estimate of the value of those goods or services.

• It must state that the only benefit you received was an intangible religious benefit, if that was the case.

If you make several smaller gifts to the same charity throughout the year, you need an acknowledgment only if any single gift is $250 or more.

This can be the most challenging aspect. The fair market value  isn’t what you paid for an item, but rather what it’s worth now. Several reputable resources, including The Salvation Army and Goodwill, provide donation value guides.

If you claim a deduction of over $5,000 for a non-cash charitable contribution of one item or a group of similar items, you must obtain a qualified appraisal of such item or group of items and attach it to your tax return.

Note that a “group of similar items” can trigger the appraisal requirement. That’s what happened to Mr. Bass. His 172 trips were for clothing donations totaling $13,852 and $11,594 for the two years before the court—well over the $5,000 appraisal requirement for the group.