As you clean out your attic and closets, you might find yourself neck-deep in bell-bottom jeans, polyester leisure suits, dusty garden gnomes and heaps of old toys – not to mention that collection of velvet dolphin paintings you inherited from your grandmother. You know you want to get rid of it all, but what will get you the biggest bang for your stuff?
You could plant a garage sale sign in your yard and try to make some quick cash. Then again, you could save yourself blood, sweat and tears and simply donate the goods to your local charity – which could lead to a decent tax deduction next April.
Keep reading to learn which option makes the most financial sense.
One’s Man Trash = A Wad of Cash?
There’s no question that garage sales require a ton of work. You have to sort through your unwanted stuff, place price tags on each item and then haul everything onto the driveway and neatly display the goods. If you want folks to show up, you’ll also need to promote your sale by planting signs around the neighborhood and maybe also advertising through the local penny-saver or community website. Yet despite all the time and effort they require, some folks actually enjoy holding garage sales – and the lucky ones end up making a decent chunk of change.
Although the average yard-sale item is priced at a meager 85 cents, these sales rake in more than $4 million each week across the U.S., according to a Signs.com study. While that may seem like serious dough, the profits are far less impressive when you break down the numbers by individual garage sales. The vast majority of sellers makes less than $300, based on a poll by YardSaleSearch.com. About 14% – savvy garage-sale pros – earn more than $1000.
On the plus side, the proceeds from a garage sale are not taxable. “Garage sales are considered the sale of personal property, and you do not have to claim the money you received from the sale,” explains P. David Alessandri, a Certified Public Accountant in Tampa, Florida.
Donate for Good Karma – and a Nice Tax Deduction
If the thought of organizing a garage sale makes doing your income taxes sound like fun, you can always box up your unwanted items and drop them off at the local Goodwill, Salvation Army or another charitable organization's shop. You'll avoid a the headache of a sale and have the satisfaction of helping families in need. As an added bonus, you may be eligible for a tax deduction.
To be sure that donation is truly tax deductible, keep these three things in mind:
- Be sure to donate the items to a qualified charitable organization.
- Always obtain a proof of donation for your contributions.
- Itemize your deductions on your tax return, rather than using the standard deduction.
“As long as you itemize your deductions, you can list your ‘non-cash’ donations on Schedule A,” Alessandri explains.
Your donated items are assessed at “fair-market value,” which you can determine by comparable sales on eBay, Craigslist or at local thrift stores. You can also find donation-value guides on many charitable organization websites. If your donations for the year add up to more than $500, you must complete Form 8283 and attach it to your return. On this more complex form, you have to describe each item over the $500 that you donated, identify the recipient and provide information about the value of the item, including your cost or adjusted basis.
How big a deduction will you receive? That depends on your tax bracket and rate. For example, if you donate goods with a fair market value of $1,000 and your effective tax rate is 15 percent, you will reduce your tax bill by $150.
The Bottom Line
So, which has the higher payoff: garage sale or donation? If you file a tax return with itemized deductions, consider doing both. Hold a garage sale for some quick cash. Donate the items you don’t sell to a charity for the tax deduction. “That way, you’ll end up with some cash and maybe a little extra tax savings on your tax return,” Alessandri adds. If you take the standard deduction, though, bite the bullet and have a garage sale.
TaxesGenerosity may be its own reward, but some charitable giving also provides personal tax benefits.
BudgetingWhether you're selling or buying, these tips can help you get more out of this summer's garage sales.
TaxesDonating to charity is a great way to show your giving spirit and save money on your taxes at the same time.
Personal FinanceYour garage is probably the most convenient place to stage a sale, but it may not be the most profitable.
TaxesBeing generous has never been more (financially) rewarding!
TaxesLearn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
RetirementTo some of the super rich, inherited wealth is not the ultimate gift, it's a burden. Here's how their children—as well as charities—stand to benefit.
TaxesDiscover information on some of the best countries to consider relocating to that offer the financial benefit of charging no income tax.
ProfessionalsHarvesting tax losses is a key skill that investors can use to keep more of their money in their pockets the next time they file taxes.
Fundamental AnalysisTaxes may be a necessary evil, but that doesn't mean they can't be reduced. Here's a host of smart moves today's investors can make.
The Republic of Panama is considered one of the most well-established pure tax havens in the Caribbean due to extensive legislation ... Read Full Answer >>
If the owner of a variable annuity dies before receiving full payment, his beneficiary must pay taxes on any earnings received. ... Read Full Answer >>
In the United States, consumers do not pay any additional tax on health insurance premiums. However, your insurance premiums ... Read Full Answer >>
Tax-exempt mutual funds can be found at many prominent investment firms. Most mutual funds offer a variety of investment ... Read Full Answer >>
Despite the fact that earning dividends requires no active participation on the part of the shareholder, they do not meet ... Read Full Answer >>
Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>