Tax-Exempt Goodwill

• While many goodwill organizations will accept your property donations, not all of them are eligible to receive tax-deductible donations. The IRS will not allow you to claim a charitable contribution deduction unless your donation goes to a tax-exempt organization. Although the IRS must approve a goodwill organization’s request for tax-exempt status, all tax-exempt organizations must solely operate to further charitable, religious, educational, literary, scientific or humanitarian purposes. To ensure you choose a goodwill organization that is tax-exempt, refer to IRS Publication 78 or speak with a representative of the organization before making the donation.
  
  

Assessing Donation Value

• Your charitable deduction is equal to the fair market value of all property donations you make. Regardless of how you estimate the value of property, the estimate must always reflect the price you can sell the item for at the time of making the donation. For example, if you donate used clothing or household items, the best way to assess their value is from the prices that other goodwill and thrift stores in your community charge for comparable items. If you donate something that is rare, such as art or historical memorabilia, the IRS requires that you consult a qualified appraiser who can accurately assess the property’s value.
  
  

Valuation Penalties

• In the event the IRS finds that the fair market values you assign to your goodwill property donations are too high, the agency has the authority to impose substantial tax penalties. When the value you report for an item is 150 percent or more of its true value, the IRS will increase the resulting tax underpayment by 20 percent. If the value is 200 percent or more, penalties increase to 40 percent of the tax you underpay.
  
  

Itemizing Requirement

• Unless you elect to itemize your deductions, you will not be able to claim a charitable deduction for your goodwill donations. Do not make the election just to deduct your donations without evaluating whether the standard deduction will save you more in tax. The IRS allows you to choose between the two deductions, and it’s perfectly acceptable to choose the larger one. Therefore, compare the standard deduction available for your filing status to the total of your goodwill donations plus all other expenses that you can report on Schedule A.