Donating Clothing to Goodwill and the Salvation Army
As the year comes to aclose, many taxpayers consider making clothing and household item donationsboth to give back and to optimize their tax deductions.
Recent cases, like theone involving Duncan Bass, underscore the significance of understanding andadhering to IRS regulations related to these contributions.
Mr. Bass made anastonishing 172 trips to Goodwill and the Salvation Army, strategicallyensuring that each donation receipt remained below the $250 threshold.Unfortunately, he didn’t account for the rules on (a) aggregation of similaritems and (b) appraisals.
But before delving intoaggregation and appraisal, let’s clarify the $250 rule. If you make a singlecharitable contribution of $250 or more, you must obtain written acknowledgmentfrom the charitable organization to validate your deduction. This is oftenreferred to as a “contemporaneous written acknowledgment.”
- It confirmsthe amount of cash or describes any property you contributed.
- It must indicatewhether the charity provided you with any goods or services in return for thegift. If so, it must furnish a description and a good faith estimate of thevalue of those goods or services.
- If applicable, it must specify that the only benefit you received was anintangible religious benefit.
If you make multiplesmaller gifts to the same charity throughout the year, you’ll needacknowledgment only if any single gift is $250 or more.
Determining fair marketvalue can be the most challenging aspect. The fair market value is not what youoriginally paid for an item; rather, it’s what it’s worth presently. Numerousreputable resources, such as The Salvation Army and Goodwill, offer donationvalue guides.
If you claim adeduction of over $5,000 for a non-cash charitable contribution of one item ora group of similar items, you must obtain a qualified appraisal for that itemor group of items and attach it to your tax return.
Key point. A “group of similar items” can trigger theappraisal requirement. This is precisely what occurred in Mr. Bass’s case. His172 trips comprised clothing donations totaling $13,852 and $11,594 for the twoyears before the court—well surpassing the $5,000 appraisal requirement for thegroup.
Deduct Travel by Car, Train, Plane, or Boat
Say you are going to travel from your homein Washington, D.C., to San Francisco.
Will the tax law allow you to travel to SanFrancisco by car, train, plane, or boat, your choice?
Answer. Yes. But special rules apply. You need to know these rules toguarantee your deductions.
Travel by Car
The tax code does not dictate the fastestor cheapest form of travel. Therefore, you can travel for business byautomobile or other vehicle from Washington, D.C., to San Francisco.
When you travel by automobile, your directroute expenses for meals, lodging, and other costs of sustaining life on theroad are deductible in addition to the vehicle expenses.
Side trips, say to the Grand Canyon, countas personal days and miles. You can combine business and pleasure, but you candeduct only the business part.
Business Day
You might ask: how many miles do I have todrive in my direct route to qualify the day as a business day? There’s noguidance here. This is a facts and circumstances test. Here are some facts andcircumstances.
You need to prove that your days travelingin the direct route to San Francisco were business days. In general, thisrequires passing the primary purpose test, where time spent is an importantfactor.
Example. On day three of the trip, you spend one hour packing and unpackingand five hours driving 300 miles in a direct route from Washington, D.C., toSan Francisco. Day three of this trip is a business day. Your miles arebusiness miles. In addition, you deduct your meals, lodging, and other expensesof sustaining life for the day.
What If You Bring Your Family?
When you travel by car, you spend nothingextra to have the family in the car.
But family presence makes the trip smellmore like a vacation than a business trip. This gives you another good reasonto make sure your records are in good shape.
Example. You stop at a hotel and the single rate is $209 a night and thetwo-person rate is $229. You are limited to the $209 rate—what it would havecost if you traveled alone.
With meals, your business meals aredeductible. Meals for your other family members are non-deductible personalmeals.
Travel by Train
Your travel by train faces no special rulesother than the reasonably direct route.
You can deduct the cost of the tickets ifyou buy sleeping rooms or simply travel by first class or coach.
Example. You travel for business from Washington, D.C., to San Francisco bytrain. You buy a sleeping room on the train for the trip. Your Amtrak travelfare is $3,000, and it is fully deductible.
Travel by Plane
By plane, you can travel in coach, in firstclass, by charter, or in your own aircraft.
No special rules apply to commercialtravel. You simply deduct the cost of getting to your business destination by areasonably direct route.
Example. Say that on your trip from Washington, D.C., to San Francisco, youtake a side trip to Kansas City. You figure your deduction based on the directroute airfare and deduct that. Say you spent $900 on the trip that includedKansas City. If the direct route fare to San Francisco was $500, you deduct$500, and $400 is the cost of your personal side trip.
Travel by Boat
Special rules apply to travel by boat. Forthis purpose, your boat is considered a cruise ship, and any vessel that sailsis a cruise ship.
If you travel by cruise ship fromWashington, D.C., to San Francisco, you may not deduct more than the dailyluxury boat limits, which for 2023 are as follows:
- $1,128 a day from 1/1 to 3/31
- $996 a day from 4/1 to 4/30
- $796 a day from 5/1 to 5/31
- $1,076 a day from 6/1 to 9/30
- $776 a day from 10/1 to 10/31
- $734 a day from 11/1 to 11/30
- $1,128 a day from 12/1 to 12/31
Example. You travel from Washington, D.C., to San Francisco in November bycruise ship. It takes 10 days. The law limits your cruise ship deduction to amaximum of $7,340 per business traveler ($734 x 10).
Tax-Free Rental Income with the Augusta Rule
The Augusta rule gets its name from theMasters Golf Tournament, where some members and others who live in the areareceive tax-free rent by renting their homes for a week or two. You don’t haveto live in Augusta to benefit from this rule.
IRC Section 280A(g), also known as theAugusta rule, states: “Notwithstanding any other provision of this section orsection 183, if a dwelling unit is used during the taxable year by the taxpayeras a residence and such dwelling unit is actually rented for less than 15 daysduring the taxable year, then—
- no deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed, and
- the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer under section 61.”
Here’s an example: John rents his home at$3,000 a day for 14 days. By applying the Augusta rule, he qualifies for norental deductions. But, and this is the good news, he excludes the rent, $42,000($3,000 x 14) from his income.
