This article is from the General Cat Care FAQ, posted to rec.pets.cats newsgroup. Maintained by Cindy Tittle Moore with numerous contributions by others.
When disposing of litter, it is best to wrap it up in two bags and tie securely, for the benefit of the garbage collectors. For disposal of solid matter, it is best to put it in the trash in a bag as well. Some people flush solid matter, but be aware that septic tanks will not do well with clay litter pieces (even the small amount clinging to scooped items). Clumping litter is supposed to be flushable, except with septic tanks.
Do not use kitty litter as a fertilizer in your garden. It is not a manure since cats are not vegetarians and should not be used as such. It can be incredibly stinky, can attract neighborhood cats, and there's a chance that it would be unhealthy for your plants and for you (if you eat fruits/vegetables which were fertilized by it). Keep in mind that when an outdoor cat "uses" your garden, it usually varies its poop-place and so there's not a concentration of feces, whereas if you dump litter, it's usually concentrated in a single spot.