Is Your Donation to Goodwill Deductible?

Each year many Americans give used clothing and household items to charities such as Goodwill and the Salvation Army.

Doing so helps out families in need and the donor gets a charitable tax deduction if they itemize using the Schedule A tax form. The charitable deduction is based on the value of the items at the time of the donation.

But when family child care providers make donations of used items to charities the tax consequences are much more complicated.

You cannot claim a charitable contribution for an item that you have already fully deducted as a business expense. Doing so would be getting a double tax benefit for the original purchase price.

Let's look at an example: Someone who is not a child care provider buys a toy for $50 for her own children. Several years later she donates the toy to Goodwill. At that time she estimates that the toy is worth $10 and she claims a $10 charitable deduction.

A family child care provider buys a toy for $50 and uses it exclusively in her business. She deducts $50 on her tax return as a business expense. Several years later she donates the toy to Goodwill. She can't claim the $10 charitable contribution because she has already deducted the full cost.

For more information on how to depreciate items, see the annual edition of my Family Child Care Tax Workbook and Organizer.

One More Example

A provider buys a toy for $50 toy and uses it for both business and personal purposes. Her time-space percentage was 40% and she deducted $20 as a business expense in the year she bought it ($50 x 40% = $20). At the time she donates it to charity she estimates the toy is worth $10. To see if she can claim a charitable contribution she compares $10 with the adjusted basis of the toy.

The adjusted basis is the purchase price ($50) minus the amount she has already deducted ($20) or $30. Since $10 is lower than $30 she can claim a $10 charitable contribution. She can't claim a contribution higher than $30.

Tom Copeland - www.tomcopelandblog.com

Image credit: https://www.flickr.com/photos/jeepersmedia/14862773795

For a detailed explanation about charitable contributions and what to do when you sell an item used in your business, see the annual edition of my Family Child Care Tax Workbook and Organizer.