Tax Credit Deduction for Designer Clothing Donations

Every tax season, the Internal Revenue Service allows people to deduct the amount from designer clothing that they may give to a qualified business within the tax year. But the law doesn't allow for a charitable contribution credit. In order to qualify to receive the deduction, the business must be nonprofit.

Nonprofit

If clothing is donated to a nonprofit organization, it must operate for purposes such as religious, educational, science-based, literary or humanitarian.

Donations

If you choose to donate clothing with designer labels to a place that is qualified, the clothing must be in good condition. This means that someone else should be able to wear the clothing without making any repairs to it. If you choose the deduction for any single piece of clothing that is $500 or more, the Internal Revenue Service states that you must get an appraisal of the value from a third-party. The cost of the appraisal is not included in the deduction amount but the fee is categorized as a miscellaneous deduction.

Value

The Internal Revenue Service states there is no particular method that exists for valuing clothing. It states that taxpayers should check the prices, which other thrift stores as well as consignment shops charge for clothing that is similar as well is in the same condition. But donating the designer clothing may cause you to go through various avenues to find a fair market value because the item may not be found in most thrift stores. It doesn't matter the method that you use to determine its value, but what does matter is the value of the designer clothing should not be an amount close to the amount you pay for a new item.

Limitations

The federal tax law states that some organizations that are listed as qualified are known as" 50% limit organizations." This means that if you donate clothes to any of these organizations throughout the tax year, the most that you can deduct is equal to 50% of the adjusted gross income. The Internal Revenue Service regularly up dates a list of these organizations.

Penalty

The Internal Revenue Service states that you are subject to a 20% penalty if you give value to clothing, which is 150% or more of the actual value.