Sell It or Deduct It: Which is Better?

One way that you can make extra cash is to sell items that you don’t need anymore at a yard sale, auction it on eBay, or list it on Craigslist. Generally speaking, the IRS doesn’t consider profits from the occasional yard sale or garage sale to be taxable income.

I have a relative who is a mastermind of yard sales. Not only are they great at pricing items, they are also great at negotiating the final sale price. This is a skill I have yet to acquire, but I have learned a few things over the years about yard sales.

Is selling it worth it?
A yard sale is worth it if you have items that are considered big sellers such as:
• Appliances (washers, dryers, refrigerators)
• Children’s Clothing and Toys
• Electronics (TV’s, stereos, computers)
• Sporting Goods & Exercise Equipment
• Furniture (sofas, dining sets, futons)
• Power Tools (drills, saws, tool boxes)
• Vehicles

Otherwise, you could be sitting for a few hours with items that could have brought you a good tax deduction instead. Keep in mind that these big sellers should be in working condition.

How should you publicize your yard sale?
If you have any big sellers, you should mention your big sellers on the road signage, newspaper ad, or Craigslist post. If you live in a neighborhood or apartment complex that has a community yard sale, you can take advantage of their advertising.

What are the best hours to have a yard sale?
Typical hours for a yard sale occur on Saturday morning. If you plan you yard sale for 7 a.m. to 11 a.m., you shouldn’t be surprised if you have shoppers show up at your house at 6 a.m. These are your serious buyers who know exactly what they are looking for at yard sales.

Another strategy is to have an early evening yard sale on Friday. This may require you to take a few hours off of work, so you’ll need to determine if your PTO is equitable to the sale price of the items. If you don’t have any big sellers, it may not be worth it.

What should you do with the items that didn’t sell?
There is one thing that must be understood about yard sales – not all items will sell. Once you can get over this fact, you will be able to remove your emotional attachment to the items you are trying to sell. It will also be easier to donate those unsold items to charity. Depending on the condition of your unsold items, you may be able to get a decent tax deduction.

How do I take the tax deduction?

1. First, make of list of all of the items you are donating to charity.
2. Second, determine the Fair Market Value of the item. The IRS does offer guidance about assessing Fair Market Value. To make the process easier on my family, I used TurboTax’s It’s Deductible software to gauge the worth of my soon-to-be donated items. It’s Deductible will want a few details about the items about their condition. You can also use The Salvation Army’s Value Guide to determine Fair Market Value.
3. Third, take photos of your donations and keep the donation receipt. The photos and the receipt are going to be the best proof that you donated the items. Although the IRS may want details starting on a $5,000 donation, I start keeping records if my donation started reaching the upper range of three digit figures.
4. Lastly, take the tax deduction the following year. You may be pleasantly surprised when you see you tax liability reduced.

Each individual’s tax situation is different, so you will want to double check the laws in your area. This is especially true if you have substantial income from your yard sale, eBay auction, or Craigslist ads.

Have You Updated Your W-4? Get a Handle on Tax Withholdings

It’s the week before Tax Day. If you have already prepared your variation of the 1040, the following thoughts may have run through your head:

• “I owe WHAT!”
• “Thanks God! I don’t owe a penny!”
• “Woo Hoo! I got $2,500 back! Cha-Ching!!!

When it comes to federal income taxes:

• If you owe, you paid too little during the year.
• If you broke even, you are doing fine.
• If you are receiving a refund, you overpaid too much during the year.

Now consider, when was the last time you completed a Form W-4? Chances are that it was around the time you were hired by your employer. A number of people, especially those in entry-level positions, don’t give a second thought to the idea of updating their W-4 on a yearly basis; however, the IRS states that employees may “want to change the number of withholding allowances or his or her withholding rate (marital status) on Form W-4 for any number of reasons, such as a marriage, a change in the number of dependents, or a change in the amount of itemized deductions or tax credits anticipated for the tax year.”

Form W-4

The purpose of a W-4 is to inform the IRS and your HR/Payroll Department about the number of exemptions you will need to take during the year. Due to legalities, no one at your company should instruct you on how to complete the W-4. Only you, your spouse, your tax specialist, and, possibly, the IRS should have a hand in the matter. The problem is that circumstances changes – children are born, marriages are created, divorces are survived, and people simply forget to update this form when their lives are impacted.

Download IRS Form W-4

The W-4 can assist you with identifying the amount of taxes you will owe at the end of the year. Some people tend to complete the Personal Allowances Worksheet (Lines A through H), then notate the appropriate information in the Employee’s Withholding Allowance Certificate (Boxes 1 through 7), and call it a day. If you are lucky, your new employer has already completed Boxes 8 and 10 for you.

If you continue onto Page 2 of the form, you will find the Deductions and Adjustment Worksheet. This area of the W-4 may help you plan better for your tax circumstances throughout the year and minimize the amount of taxes overpaid or underpaid. If your household has two wage earners or individuals with multiple jobs, you will want to complete the next section, “Two-Earners/Multiple Jobs Worksheet.”

Online Withholding Calculator

One other tool you can utilize is the IRS’ online Withholding Calculator. This calculator requires a bit more information and additional circumstances (i.e. age, blindness, childcare credits, HSA information, and other adjustments) are taken into consideration. Once you complete the online Withholding Calculator, you can plug in the numbers onto the W-4. You may be able to update your withholding information online.

Paperless W-4

If your employer is using an online Human Resources Information System (HRIS), then you may be able to update your withholdings within the system. If your HR/Payroll Department has enabled the paperless W-4 feature, they should inform you how to update your withholdings if you are using software developed by ADP, Ceridian, Lawson, PeopleSoft, and Spectrum.

Here is a listing of other events that impact your tax situation according to the IRS.