As tax time is upon us, we would like to help donors make informed giving decisions when they part with their hard-earned dollars by writing a check to charity. In the past few years, however, more and more donors are attempting to help themselves, and help others, by donating their used automobiles to charity.
This has become a massive business. In the year 2000, nearly 750,000 people took a car donation deduction on their federal tax returns, thusly lowering their taxes by over $650 million.
As America’s car donation system is currently construed, it is easy for donors to benefit greatly by donating their cars, albeit with a little risk. By following these 11 tips for charitable auto donations, you can minimize that risk, and maximize the amount that actually gets to charity.
01. Find a Charity That Directly Accepts Car Donations
If at all possible, avoid the for-profit intermediary organizations that advertise so pervasively to handle your car donations. When you work with one of these organizations, they keep the vast majority of the dollars created from your donation. Even the most reputable of the agencies that handle these transactions keep nearly 50% of the car’s value for their troubles (other, less scrupulous entities keep 90%, or even more). If you can find a charity that handles the transaction themselves, they can keep 100% of their profits. It is possible that the charities you already support have a car-donation program that you do not know about. Check with them first.
02. If Your Charity Does not Accept Cars, Take the Time to Find a Charity That Does, and Still Does Work You Respect
Remember that you are still making a charitable donation, and do not simply give your automobile away to any charity, just because they are a charity. Do a little research, and find a high-performing charity that does the kind of work you like, in the region you wish to target, and does that work well.
03. If It Runs, Drive the Car to the Charity
Worthy charities are going to have to pay someone else to handle a pick-up or a tow. This is yet another cost that cuts into the amount that gets to that organization’s programs. If you can get the car to them yourself, do it.
04. If You Have to Use a Intermediary Agency, Research the Percentage that Gets to Charity
The IRS does not require the car donation agencies to contribute a set amount of the auto’s proceeds to the intended charities; that amount is negotiated between the charities and the handlers. Try to find an agency that maximizes that amount, and call the charity to confirm that number before you give. The charities are reluctant to criticize the middlemen, because they don’t want to lose the dollars they do receive, but state attorney generals are beginning to investigate and even prosecute these for-profit middlemen, for holding themselves out as charities and misleading the public on the amount that is actually reaching charitable causes.
05. Make Sure Your Intended Organization is a 501 (c) (3)
While many organizations can claim non-profit status, donations to 501 (c) (4) organizations are generally not tax-deductible. These are political organizations with permission to lobby our government; like Disabled American Veterans or the National Rifle Association. Make sure your intended recipient has 501 (c) (3) public charity status.
06. Transfer the Car Correctly to the Charity
Some charities will ask you to leave the assignment of ownership space on the charity donation papers blank, so they do not have to re-title the auto. If your charity asks this of you, find another charity. If you do not formally sign your car over to the designated nonprofit, you will be held responsible for any parking tickets that are subsequently incurred, or liable if it’s used in a crime. Remember, the charity you give the car to will probably not use your car to deliver meals to the needy, but will simply sell it as quickly as possible. When someone buys it from them at auction and doesn’t bother to register that car, it is still yours in the eyes of the law.
07. Value Your Car Correctly
Due to the proliferation of car donations, the IRS became increasingly concerned about how taxpayers valued the vehicles they donated to charity. Over the last few years, the agency stepped up their audits in this area and began to advocate for changes to the laws that govern such deductions. With the passage of the American Jobs Creation Act of 2004, those changes have come. Starting with your 2005 tax return, you will no longer be able to deduct the published fair market value of vehicles worth more than $500. Under the new rules, your deduction will be determined once your car is sold and the charity sends you a receipt indicating the exact amount your car garnered at auction.
08. Complete Your Paperwork
If your car is worth more than $500, you must complete IRS Form 8283 and attach it to your yearly taxes.
09. Use Fair Market Value (FMV) for the Car
There are several exceptions which allow you to use the Kelley Blue Book or a NADA guide, but you must use the FMV, not simply the highest value listed for the year and make of your car. Use the FMV when:
* instead of selling the vehicle, the charity keeps and uses it
* the charity makes improvements to the car before selling it
* your car is sold at a discounted price to a person with a low income
* or if the car is worth less than $500
And remember to always get a receipt when you donate the car. Again, the IRS is watching this area very closely.
10. Take the Time to Get It Right
It is true that the biggest winner in the car donation game is usually the donor, and not the charity recipient. But if you take your time, ignore the quick and easy television appeals, and find a reputable, high-performing charity that will make the most of your donation, we can all emerge victorious.
11. Consult With a Licensed Tax Professional*
Please consult with a licensed tax professional as the information above is intended for informational purpouses only and is not a tax advise.