@bmmr2nv wrote:
This makes no sense? How is one able to deduct donated clothing to Goodwill if the clothing was also never part of your income?
You can deduct something in which you have basis. Basis is, roughly speaking, the amount of after-tax money you invested or paid to acquire the item. If you buy clothing, you are using after-tax dollars, and your basis is what you paid. (If you receive clothing as a gift, your basis is what the giver paid.) If you donate clothing, you can deduct either the fair market value of used clothing, or your basis, whichever is less, because you paid after-tax dollars to acquire it.
On the other hand, if you make clothing to donate, you can only deduct the value of the materials that you paid for with your after-tax dollars. You can't deduct the value that was added by your labor, because you have no basis in your own labor.
This is all described in publication 526.
