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How Car Donation and Charity Giving Can Reduce your Tax Burden
from: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 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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