Anyone know about charitable donations 'carry over' rule with he IRS?
I'm reading it as; you can deduct up to 50% of your Adjusted Gross Income (AGI). If I donate goods equaling >50% of my AGI, I can carry over donation value into following year.
So in 2011 I made $100,000. I allowed to deduct up to $50,000 in donations.
I donate $75,000 in goods. So I write off $50k on 2011 taxes. Then 'carry forward' $25,000 to write off on 2012 taxes?
And donations can be deducted anytime ("carried over") in any of the following five years?
Yes, it is true that the max that you can deduct is 1/2 of AGI. And yes, the remainder does carry over to the following year. There is actually a line for that on the tax form.
(And, in 18 years of preparing income tax returns for people, I think I put something on that line about half a dozen times. It is not very frequent, and all but two of those times, it involved someone who had an unusually low income for just one year. And one was a senile old lady who just gave away most of her belongings to her church one year.)
Anyway, the bigger issue is the documentation you have to do to make a donation of goods that large. For donations of a few hundred dollars or less, the IRS will pretty much just take your word for it. Plus, one of those blank receipts that Goodwill or SA or St Vinnies gives you. For donations totaling over $500, they want more documents. They will want to know where and when you got the items, and what means you used to value them. And, for donations totaling over $20,000 (unless they changed that number recently) they will want you to get an appraisal of the items and what they are worth.
One other thing you (and others who are reading and make smaller donations) will want to keep in mind. The deduction is limited to the LOWER of the BASIS or of the FAIR MARKET VALUE of the items donated. Example: You purchase a locker for $100 and find that the only unmarked box in the unit contains $1500 worth of tools. You decide to donate the tools to charity. Your deduction is limited to the $100 that you paid for the tools (your basis) and not the $1500 FMV.
Also, for those looking in, you cannot make a double deduction. On your Schedule C form for the business, you count the sale price of the goods you sell as income. You deduct from that what you paid for the lockers, as well as your business expenses. Here's where the double deduction comes in: If you already deducted the whole cost of your purchased lockers on your business form, your tax basis in the items donated from that locker is now zero, and you cannot deduct their cost again when you donate them to charity. So, yes, I take a lot of stuff to my local St Vincent dePaul for "recycling". But I can't generally deduct that on my Schedule A because I have already deducted the cost of those items when I deducted the cost of the storage locker purchase on my Schedule C.
(And yes, as someone who has one Schedule C for an accounting business and another smaller one for a business buying stuff at auctions and selling it on eBay, I have been audited on that issue. Good record keeping is worth its weight in gold when that happens!)
So, yes, you can do the carryover. But I would probably worry more about having your other ducks in a row.
Bryan