Car Donation for Charity

Much is made every April about tax deductions, despite the fact that very few people use itemized deductions to account for donations of physical goods such as clothing, furniture or autos.  Tax deduction is further complicated by being discounted from your net income rather than the net tax owed.  In essence, this means that an average taxpayer receives about 30% of a given donation in actual tax relief, depending upon their tax bracket.

Though it still represented less than a single percent of actual charitable giving in the United States, boat and auto tax deductions were a growing and very visible component of charitable giving when the General Accounting Office (GAO) issued a report on this topic to the US Senate Committee on Finance in November of 2003.  At that time, fewer than 1% of the nearly 200 million tax returns filed in 2002 used an auto for tax deduction purposes.

Despite this relatively small amount of claiming, the GAO theorized that perhaps twice the number (about 700,000) of autos were actually donated.  This suggests that after the sale of said autos, tax deduction rules made many of the donations worth reporting.

Often this is the case when people are better served by taking the standard deduction or they simply don’t know how to go about with itemized deductions and don’t have the extra money to hire a professional tax preparation specialist.  Even when donating a fairly expensive auto, tax deduction limits that require signed forms (essentially affidavits of fair sale and donation) from the receiving agency may show a far smaller value than you thought the donated vehicle would be worth.

This is especially true of vehicles worth more than $5,000, though even those that net over $250 at auction require an acknowledgement of the donation from the charity in question.  Even when as little as $500 is received for an auto, tax deduction requirements require a form (IRS Form 8283, section A) to be filled out, though only the most expensive ones require a signed form from the donation agency.

The disparity between the price listed in such publications as the Kelly Blue Book and the actual sales value of a car is largely dependent upon how the vehicle is sold and by whom.  For instance, in 2002, a majority of charitable that accepted donations of vehicles were handled by third-party organization, even if the charity itself handled the initial contact calls.  Despite the high value of the auto, tax deductions are limited to the actual value received by the charity, and that can represent a small fraction of the original gift.

That certainly doesn’t mean you can’t make a significant donation with your old auto.  Tax deductions are certainly available, and for those who are accustomed to itemizing their deductions, such as small business owners and the self-employed, choosing this route can be both rewarding and profitable.

For instance, you don’t need to rely upon a third-party donation service, such as those who continually advertise in just about every type of media.  Indeed, when donating an auto, tax deductions are the same whether you give away the actual car or the money that you receive from its sale.  Selling the car yourself may be a bother, but you will reap as much as 20% greater deductions from such a cash gift.

There may also be charitable organizations in your area that have use of a running car.  Though a large number of cars donated to charity don’t run well or at all, many do run and can assist low-income families in spread out metropolitan areas that aren’t adequately served by public transit.  Such an auto, tax deduction aside, can really make a big difference for a family on the brink of making a living.  Your deduction will be higher, and you’ve made a real, tangible difference in someone’s life, assuming you didn’t donate a lemon.

One may also consider donating a car or truck to the local high school (or technical college) shop class, especially if it’s a fine car in need of a lot of work.  Even after the cost of materials for the auto, the tax deduction will be far higher when the car is eventually sold since the cost of labour need not be accounted for.

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Technorati Tags: auto tax deduction, itemized deductions, tax deductions

Tags: auto tax deduction, itemized deductions, tax deductions

Most people assume that car donation and charity giving are tools the rich alone are able to use to ease their tax burden.  This couldn’t be further from the truth!  Anyone can file a tax return with itemized deductions if they bother taking the time and effort to do so.  Though you are responsible for gathering receipts that back up your deduction claims, car donation for charity is now set up in such a way as to make claiming the correct amount in deduction easier than ever.

In the case of car donation, charity organizations have been reliant upon donated items for a long time, though hardly as a large part of their overall donation dollars.  In fact, a report issued by the General Accounting Office (GAO) in 2003, when levels of charitable giving was at its highest in terms of car donation, charity coffers were still little affected by the input of donated vehicles.  As little as six percent of the “typical” charity was represented by car donation.

The self-employed are in an especially good position to take itemized deductions of monies turned back into the business as well as legitimate car donations.  A charity that is sanctioned by the IRS and has a legitimate non-profit tax ID number should be more than able to provide you with the forms you need to make your deduction with the same confidence as any other type of deduction you save a receipt for.

Of course, individual returns are far more likely to claim the standardized deduction, making car donation to charity impossible to claim.  However, filing itemized deductions can actually benefit most taxpayers providing they take the extra time to write them all down.  Indeed, it is common for someone who had previously taken a standardized deduction to find their tax burden to be somewhat to significantly decreased as a result of this extra effort – as much as 30 or 40% in some cases.

With the extra money available for donation that can come from car donation, charity giving can be very useful for bringing one’s income down below the level where they might put you into a higher tax bracket.  Near the end of the year there is often an increase in auto donation by those who are nearing a higher bracket they wish to avoid.  This can save you quite a bit when done correctly.

Generally it is a good idea to not count on your car netting the sort of value at sale that you might imagine it would, given the Kelly Blue Book value listed.  According to current IRS guidelines, car donation to charity that nets over $250 must be accompanied by a receipt that clearly outlines how much value the car actually was able to get (usually when sold on the wholesale or scrap markets) for the charitable organization in question.

Another potentially lucrative use of car donation to charity is using the donation amount as a deduction compared with the expense of fixing up the car yourself for sale later.  Though this can actually save some people more money, one is liable for the capital gains of a vehicle that has appreciated since you took ownership at least one year previously.  In the case of collectible cars that have already been fixed up, this can represent a real hit.  Knowing what cars to donate and which ones to keep a hold of for investment purposes is highly volatile and subject to the other income specifics of such a donor.

It is always a good idea to talk to a CPA, especially if you already have the services of one retained for your regular tax preparation advice.  If you own a business, this is especially true.  Even the same car donation to charity can vary greatly in its value to an individual’s return.

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The good news is that securing the correct paperwork when you donate an auto for tax deduction purposes should be simple.  In fact, it should be automatic, but in some cases, you may have to remind the people who are handling your donation of their obligations under the law.  Since 2005, it has become far more straightforward to donate autos.  Tax deduction leves, however, are a bit less for most donations than they were before then.

As such, it’s imperative that you not only secure your receipt of transaction but find out exactly what has happened to your vehicle.  If it’s being used or fixed up for use, even if that includes a sale in the first two years after you’ve decided to donate.  Auto tax deductions are now very closely tied to the ultimate use of the vehicle, so those which are sold wholesale within the the first few months, without an intervening use (other than paperweight or small greenhouse), can only use that sale price as the deduction.

Furthermore, the amount that actually goes to the approved charity in question is the amount you must not exceed when preparing your itemized deduction at the end of the year.  It’s in your best interest to make sure that’s the figure you’ve gotten if there’s a third-party agent that is facilitating the transactions for the charity in question.  When you donate an auto, tax deduction concerns are such that if anything is wrong at all you risk losing the whole deduction and attracting the attention of an auditor.

Thankfully, not only are there guidelines for what documents you should have, but also time-frames in which they must be sent to you.  For instance, when you actually turn over the title and donate the auto, tax deduction paperwork should be set in motion.  This means that if the intention of the agency is to turn around and sell as soon as you donate the auto, tax deduction paperwork should be forthcoming within 30 days of the impending sale.

Such sales usually take place within the first week or so after the vehicle is picked up.  So, if it’s been two months and you’ve not heard anything, be sure and call the charity or third-party agent to find out what has happened with your car.  Again, they are required to tell you their plans for your donated auto, a tax deduction range they expect (given that use) and when you should expect your paperwork in the mail.

If, on the other hand, you find out that your car is in good enough shape to warrant repair and use by a needy person or family served by the charity’s mission, there is no bill of sale to base your donated auto tax deduction calculation upon.  In this case, you should be given a notice within 30 days of this decision that indicates this practical use of the vehicle as well as the appraised value.

If the car will be worth more than $5,000 this appraisal should come from an independent appraisal service (arranged by the charity or third-party agent) and be provided with a signed Form 8283, with a completed section B.

You should expect Form 8283 (section A) for any value between $500 and $4999.99 earned for your donated auto.  Tax deduction paperwork then is simply a matter of filing these documents with your Form 1040 Schedule A itemized deduction worksheet.

If at any time you feel you’re getting the runaround from any of the players in this game, a call to your State’s Attorney General, Secretary of State Office or the Better Business Bureau are good places to start an investigation of a potentially fraudulent donation service.  If you’ve asked on more than one occasion for documents and they don’t arrive within the month, then you are officially getting jerked around with regard to your donated auto.

Tax deductions are not a big deal now that there is an existing framework for getting the documentation you need.  Having a few pictures of the car as you’re getting ready to donate it are also handy.  It never hurts to keep a few in your folder just in case.

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