Sep 2010
3
Posted In: taxes
Reduce Your Taxable Income by as Much as 30 Percent when You Declutter by Donating
Decluttering is an important part of saving money. Why? Because the fewer things you have, the greater value each item accumulates. It is the law of supply and demand in action. When there is ample supply of much around you, there is little value in those things. If you had only two shirts in your closet, would you be so nonplussed if you spilled ketchup on one? The point is that making the things you own more valuable psychologically helps you place a greater value on the things you are about to buy. Is it worth having this new item in your home? Do you want to spend the money on it? The less stuff you have, the more likely you are to answer that question, “No.”
Another advantage of decluttering is the extra time you get to the things you actually like and use, and saving time on picking up and cleaning. The biggest obstacle to decluttering for most people is the thought of all the wasted money spent on now unused objects. But the money is just as wasted with those things accumulating dust in your house. Does it matter if the object gets dusty in your home or somewhere else? Not if you don’t use it.
Don’t Toss It, Save Money with It!
But that doesn’t mean the clutter has to go to the landfill. A greener option that can make you feel better about decluttering while saving money is to give the items away. Once you’ve sold everything of value, you’ll still be left with a lot of clutter. The rest can be donated to a charity such as Goodwill or the Salvation Army. You can get a tax deduction that takes quite a bite out of your tax bill. Of course, there are rules that must be followed when it comes to deducting charitable contributions of property.
Rules for Charitable Donations
The first rule of making donations that will be tax deductible is to itemize, itemize, itemize. Keep an accurate itemized record of what you gave away and get itemized receipts for all items you donated. It takes a little more time to wait around for the receipt, but well worth your five minutes. Finally, you must itemize the donations on your tax returns to get the credit.
By “itemize,” we mean you must have a list of everything you donate. In other words, you need to be able to show the IRS that you donated five pairs of jeans, twelve shirts and a suit, not just a bag of clothing. Most charities won't take the time to write this out for you, so you should make a list before you drop off your donation and attach the receipt you get from the charity to your list.
Qualifying Charities
The charity that you donate must be recognized by the IRS as a 501(c)(3) nonprofit organization in order for you to make a deduction. Check to make sure the organization to which you are donating qualifies before you make your donation. Your poor neighbors down the street don’t count.
You May Need a Fair Market Value Appraisal
If you are donating used items, you must determine the fair market value in order to come up with the amount you can deduct. If you donate a pair of jeans that cost $60 new, you can only deduct what they are worth now. If they are in good shape, they might be worth $5 or $10 now, but certainly nowhere near $60. For items worth more than $5,000, you must have a written appraisal of fair market value if you want to claim the deduction.
How Much Can You Deduct?
When filing your taxes, you will have to include form 8283 if you donate more than $500 worth of property (not cash) to charitable organizations. There are limits to the amount you can deduct each year, but if you exceed the limit you can carry over the excess to the following year for up to five years. The current limit for contributions of property is 30% of your adjusted gross income. Can you imagine paying takes on only 2/3 of your income just by decluttering your home?
Next time you consider throwing something out, take a minute to think about whether someone else might be able to use it. If so, there is probably a charitable organization somewhere that would love to have it as a donation.
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