A Tax Deduction for Charity Quilting
By Janelle Cahoon, Quiltcentric
Quilters are generous people. We give our time and quilting talents not only to friends and family but to total strangers who need the warmth of a quilty hug in times of need.
Many of us, however, never think of documenting these loving donations in a way that would allow us to deduct their costs as a charitable contribution on our income taxes. It makes sense to do so. Taking this deduction frees up cash we can turn around and use toward fabric and supplies for the next year’s charity quilts. And who doesn’t want to save a little money when they can?
With 2013 just beginning and the 2012 income tax filing deadline approaching it seems like a good time to address what quilters can do throughout 2013 to document their donated quilts as charitable contributions on next year’s tax filing.
Jackie Perlman, Principal Tax Research Analyst at The Tax Institute at H&R Block, was willing to explain the rules and requirements for taking the charitable contribution deduction for donated quilts.
The first requirement is thorough documentation of the costs involved. This means keeping receipts for all your expenses for making the donated quilts. Ms. Perlman recommends making the quilts you plan to donate from newly-purchased materials rather than your fabric stash, so you’ll have receipts to document their value.
“In general,” Ms. Perlman said, “it would be very difficult to put a value on materials for which the donor has not saved any receipts. Just as with other household goods that someone may wish to donate, there is no fixed formula or valuation method that is useful for this purpose. If someone is planning to make and donate a quilt, it would be preferable to purchase the materials so that receipts are readily available. An exception might be for unique, possibly vintage or antique fabrics that may have intrinsic value. In that case, the taxpayer would need a qualified appraisal to put a value on the fabric.”
The tax-deductible value is restricted to the cost of making the donated quilt. This would include the fabric, thread, batting, etc. If you pay someone to quilt it professionally, this documented expense is also included. But no matter how beautiful the quilt or how much time and effort you put into making it, these factors don’t affect the tax-deductible value.
“That may sound harsh,” Ms. Perlman acknowledged, “but that is how the tax law works.” She added that this rule doesn’t just apply to charity quilting, but to the donation of any self-created works including novels, paintings, musical works, etc. Only the cost of making the item is allowed.
Some of us have donated antique or valuable quilts to museums or other non-profits and rules about this kind of donation are somewhat different.
Ms. Perlman explained that in this case the donor needs to document their purchase cost for the quilt, but that if the donor then holds onto that quilt for more than a year before donating it, and if the quilt appreciates in value during that time, then the donor can deduct the fair market value of the quilt at the time of donation rather than its cost when purchased.
“The taxpayer would likely need a qualified appraisal in that case,” she said. “Also, remember that the ability to deduct the appreciated value rather than the cost basis of the quilt does not apply to a quilt that the donor made.”
Even with careful documentation of costs, the quilt’s value is only deductible if you donate it to a tax-exempt 501(c)(3) organization. Fortunately, most of our quilt guilds and organizations like Project Linus and Quilts of Valor are tax-exempt, but if you have any doubts or concerns you can check the status of an organization using the IRS’s ‘Exempt Organizations Select Check’.
You will then need to get documentation of your donation from the organization. This could be in the form or a donation receipt or a letter acknowledging their receipt of the quilt.
“The ‘records to keep’ section of IRS Publication 526, Charitable Contributions, explains what information must be on the written acknowledgement,” Ms. Perlman said. “In many instances, a short description of the quilt and the date and location of the receipt of the gift will suffice.”
The charitable contribution deduction is available to anyone who files their income taxes with itemized deductions. With tax savings that could be in the hundreds of dollars, depending on how much charity quilting you do, a little extra work on documentation throughout the year can be well worth the effort. Begin now and you’ll be ready to take advantage of this deduction next year.