The benefits of making a donation to Goodwill aren't limited to feeling good about helping others in need and reducing the clutter in your closet: The Internal Revenue Service may also reward your generosity with a tax deduction. However, to get the deduction, you need to know how to value your donation and what records you need to keep in case the IRS audits your return.
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Valuing Your Donation
When you donate cash to a charity, it's easy to tell how much you get to deduct on your taxes. With gifts of goods or property, such as clothing, household appliances or games you don't play any more, you're allowed to deduct the fair market value, which the IRS defines as the price a willing buyer would pay and a willing seller would accept. Usually, that's substantially lower than the new price and more like the price you pay at a thrift store. To help you get an idea of what your donations might be worth, some charities, including Goodwill, publish a pricing guide (see Resources).
The limitations on how much you can write off on your taxes for charitable contributions are very high: Your total charitable deduction for the year can't exceed 50 percent of your adjusted gross income. For example, if your AGI is $45,000, you can't deduct more than $22,500 for all your charitable contributions put together. However, to claim the charitable donation deduction, you must itemize your deductions, which means your total deductions must exceed the standard deduction you are entitled to.
Documenting Goodwill Donations
If you donate less than $250 of goods and it's not practical to get a receipt, the IRS doesn't require a formal record from Goodwill before you can claim the deduction. But, you do need to keep your own records of what you gave. For example, if you leave $100 worth of used clothing at a drop box, you're excused from getting a receipt but should keep a list of what you dropped off. Otherwise, you need a written record from Goodwill showing what you donated and when you donated it.
When you file your taxes, you must use Form 1040 rather than Form 1040A or Form 1040EZ if you want credit for your Goodwill donations. The actual deduction goes on Schedule A, which lists all your itemized deductions. However, you don't have to include any of your receipts or other records with your tax return.