In April, if you are like most Americans you will be thinking about taxes and tax deductions.  Really, not that many people may use donations of physical goods such as furniture, clothing or automobiles on their itemized deductions.  Keep in mind that tax deductions are not taken off of your taxes owed directly, but are deductions from new income.  This means that the average taxpayer is only getting about 30% of the value of a donation in actual tax relief.  This depends on your tax bracket as well.

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, less 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 not 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 which 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 charities, that accepted donations of vehicles, had their transactions handled by third-party organizations, 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 on a third-party donation services 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 good working 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 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.

You may also deliberate temporarily donating your car or truck to the local high school or technical college shop class, for them to work on.  If it is a decent car in need on some work this can serve as a learning tool for them and get your car in shape for donating to charity.  Even after paying for the material to fix the auto, the tax deduction you will get will be much higher when he car is eventually donated to charity, since the cost of labour does not need accounted for in your taxes.

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Tags: car for taxes, donating a boat, donating a car, tax deductions

This entry was posted on Tuesday, August 5th, 2008 at 9:53 pm and is filed under Taxes And Auto Donation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.