Don't Over-Estimate Donated Amounts

The IRS encourages individuals to donate things like clothes, food and even old automobiles to charities. It does this by offering a deduction in return for a donation. However, the way this works is that it is up to the taxpayer to determine the value of goods that are donated.

As a general rule, individuals should value the items they donate at anywhere between 1% and 30% of the original purchase price. There may be exceptions or special circumstances and should be supported with justification and documentation.

If in doubt about the value of an item consider having an appraiser write a letter. In fact, for individual items valued at $5,000 or more, an appraisal is required. Another benchmark the IRS uses that could come in handy is the willing-buyer-willing-seller test.

This means that taxpayers should value their goods at a point or price where a willing seller (who is under no duress) would be able to sell his property to a willing buyer (who also is under no duress to purchase the item).