Churches may want to tell taxpayers that generosity is its own reward.
Shoes and pants. Toasters and blenders and recliners. Donors want to drop them off at your church’s thrift store or donation center. They will often want a deduction for such noncash donations of personal property. What do you tell them?
First, you can’t tell them what the items are worth. According to tax law, that’s something donors must determine. Beyond that, what do you say? Specifically, do you encourage them to try to claim a tax deduction for such items?
Attorney and CPA Frank Sommerville suggests that generosity might be its own reward: Kindly encourage donors to forego the possible deduction in two of the most common categories for donated items: household goods and clothing. That’s his advice.
The requirements for substantiating a bag or two of these types of items when giving to the church rummage sale might take hours to complete, Sommerville said, and properly itemizing the gift likely wouldn’t even approach a donor’s break-even point.
“Each and every item has to be assigned a fair market value, which a donor could spend quite a long time figuring,” Sommerville said. “They should think for a second of doing that for each pair of pants in that bag. For every pair of shoes they’re giving.”
Additionally, the state of the item must be accounted for, with photographs recommended to prove the item is in good condition or better. Individual items are to be acknowledged by a charity representative, line by line, not as part of a unit.
Moreover, if your church is like most charitable organizations, you aren’t equipped to issue the required receipts, nor are those volunteers or staff receiving the donations authorized, in most cases, to open bags and assess items.
But let’s say your church thrift store is equipped to issue those receipts and is willing to walk with the donor through the process?
“Even then, it’s not worth it in a lot of ways,” he said. “The cost of compliance is just simply more than the tax benefit a donor is going to receive for noncash gifts of household items. If a donor is going to itemize, for that $1,000 he or she spends that time on substantiating, the donor might be able to deduct $200. To get that qualifying receipt, that’s probably the donor’s return.” Under the new tax law, over 94 percent of taxpayers will not itemize, giving more reason for donors to avoid the compliance issues.
While only taxpayers truly can say what the deduction is worth to them, Sommerville is certain the profitability isn’t present for your church—hence the few that provide documentation to donors.
“You're just not generating that much money out of it,” he said.
For more on the topic of noncash personal property—especially those gifts with considerable market value—see “Tax Rules for Gifts of Personal Property,” in the September issue of Church Finance Today.