Let’s say I have an item that I can either sell now for $500 or donate to a non-profit group now and claim it as a $750 value donation next February when I do my taxes.
Which is better?
While cash in hand right now is always nice, is the $750 deduction actually worth $750 in the future, assuming I have had enough taxes withheld vs gross pay? I do itemized filings as I’ve already got mortgage interest and other non-profit-related deductions.
When you say “$750 deduction” this, for tax purposes, usually means that this amount is deducted from your taxable income. So, if your taxable income is $50,000, then after your deduction your taxable income is $49,250.
That means that your tax liability is reduced by however much tax you would have paid on that $750.
The highest rate of federal income tax is currently (i think) 35%, so even if you’re paying the top rate, that $750 deduction only means an extra $262.50 in your pocket. Of course, there are state and local income taxes as well, and your reduced taxable income would probably benefit you there as well, but probably not enough to bring the total benefit to you up to $500.
Unless i’ve misunderstood your terminology, and/or done my calculations wrong (always a possibility), you’d be better off financially selling your item for $500.
One thing i’m not sure of, however, is whether you’d be expected to pay any income tax or other tax on that $500.
If the thing can be sold for $500, doesn’t that mean that the fair market value is $500? So how can you deduct it at $750?
I was assuming, based on the OP, that there was some tax regulation that allowed for higher-than-market-value deductions for donations to certain charities.
If there isn’t, then your question is a good one.
In this hypothetical situation, the high value is what similar items have been selling for on eBay (completed auctions) and the low value is “I just want to get it out of my garage quickly!”
eBay’s a pretty reliable indicator of fair market values - everything that sells has sold at a price that someone was willing to pay, so an average of completed sales should be a valid amount to use as a valuation for a donation.
But sometimes, you just want the thing gone and don’t want to mess with photographing it, writing up a listing, waiting a week, answering would-be bidders’ inane questions, waiting for the winner to pay, packing it up and hauling it off to the post office or FedEx, and hoping your winning bidder isn’t a fraudster.
The complicating factor is when a non-profit group knows you want to get rid of a thing that they’d like to have. Do you sell it to the first guy to walk up with $500? Do you go through all the effort of eBay and expect it to sell for around $750, or do you donate it and deduct it at $750 on the taxes?
The BIG issue, as above, is that the true value of a tax deduction is the deduction times your marginal tax rate, likely 25% if your spouse doesn’t work or or 28% if he/she does. So 50 beomces $187.
If you just want easy, cal one of those eBay places and let them sell it for 750, take their cut, and give yuo the remaming cash. The IRS vig is 72 or 75%; I’m sure an eBay consignment store can do better than that for yuo.
An auto given is a pretty good deal. You look up blue book. I was on the generous side. Then you dont have to get involved with someone trying to cheat you out of your car.It is clean and simple.You get retail not wholesale.
I don’t know when you donated your car, but in the last couple of years the IRS has changed the rules to prevent just this scenario. If the charity sells your vehicle without any significant intervening use, you may only deduct as much as the gross proceeds of the sale. There are also much stricter reporting requirements for both the taxpayer and the charity.
Gave away 3 over the years. Not in last 4 or so though. It wasn’t the money as much as the simplicity of the transaction.