With tax season upon us, you may be looking for ways to lighten your tax burden. You’ve heard that car donations can help reduce taxes, but how does writing off car donation work? Learn more about how giving can affect your taxes with ZamZam Charity.
What Counts as A Donation?
While it’s a very charitable thing to give your car to a friend or family member for free, it doesn’t count as your car donation, according to the IRS. So, what does it do? Your donation must go to a certified 501(c)3 organization to be taxed.
The IRS has a document on its website called Publication 78, which contains all registered 501(c)3 charities in the United States. If the charity you choose does not appear on this list, any donations made to them are not tax deductible.
It’s also important to know that donating your car doesn’t necessarily require an in-kind donation of your vehicle to charity. You also have the option to sell your car and donate the proceeds to charity. This alternative to donating a vehicle for taxation gives you more control over the size of the tax credit you get, which is explained in detail in the next section.
The Donation Process
Preparing to donate a car is the same as designing a car for sale. The main difference is that the research you do at this stage is essential and needs to be recorded for your tax. Your first step will be to get an outdated estimate of your car’s value and choose a charity to donate to.
In addition to having 501(c)3 tax status, there are a few things you may want to keep in mind when choosing a charity to make sure your donations make the most of your donations. First, find an organization with administrative costs at or below 15 percent of its benefits. The remaining 85% should go to causes you support!
If you choose to donate your actual vehicle, charities may rely on intermediary services to help facilitate the donation and move your car. If so, ensure the charity keeps at least 75% of the proceeds from these transactions.
Average Car Donation Value:
Once you’ve chosen a charity, it’s time to estimate the value of your car. This is because the amount of your tax deduction depends on the value of your car when it was donated and how it looked after it was donated. Most of the donated cars are old or in poor condition, which means they will be worth less than $5,000.
Kelly Blue Book or similar resources should be fine for such a running car. If you’re donating a used car, an auction site might be a more appropriate and accurate way to measure the value of your car. Keep a dated printout of your taxes. If your car is worth more than $5,000, you will need a written appraisal of your car.
Process after car donation:
When you donate a car, you will receive documents from the charity. Make sure this document itemizes your donation and includes the name of the charity, your name and tax ID, your donation, the VIN of the car you donated, the date of the donation, and proof that you did not receive compensation for your donation. When transferring car ownership, ensure the charity’s name appears on the title.
It would be best if you also kept in touch with charities. After donation, when your car is sell by charity. You will receive a Form 1098-C. It states the sale price of your car, which is the tax you can claim.
If you sold your car privately or scrapped it and donated the proceeds, you will need the same documents except the 1098-C. Instead, keep the sales receipt so the exact price you sold the car can represent.
When Does Donating NOT Impact Your Taxes?
When filing your taxes, it’s essential to figure out whether your donations — including car donations — make more sense than taking a standard deduction of up to $12,400 for a single filer.
If you know you’re giving less than $12,400 in a given year, qualify for the standard deduction. It usually makes more economic sense to take the standard deduction rather than going through the trouble of itemizing your contributions like your car.
Does this mean you shouldn’t donate to charities? Do not! Note, however, that unless you plan to make multiple donations or donate a vehicle of extremely high value, you may not benefit financially from donating a vehicle during tax season.