Tax Tips for Vehicle Donation
The benefits of tax incentives are an excellent reason to donate an older vehicle. The type of charity a car is donated to affects how much a donor can deduct from his or her taxes; therefore, it is important to give to the right charity. Donating a vehicle is a personal decision and should be weighed carefully to determine if it is the right choice for the car owner. If it is, there are several measures the owner should take to protect himself or herself from scams or IRS audits.
Best Types of Charity to Donate To
Charities are designed to help people, but vehicle donation charities are not all the same. Donators often intend for the vehicle to be given to a family in need. This means the donor needs to look for a charity that fixes and donates cars to low income families instead of auctioning the car for charity money.
The best type of charity to donate to is one that accepts vehicle donations directly. This eliminates a third party. Often, charities will offer a tow or pickup service, or may allow cars to be driven to the charity.
Not every charity is eligible to receive tax deductible contributions. It is the responsibility of the donor to verify whether the charity is or is not eligible. Potential donors should ask for the organization’s EIN number and keep all receipts given by the charity.
Tips for Protecting the Donor from a Scam
There are many scams in the car donation business, and donors need to protect their own interests. The first step before making any commitments is to ask questions. Donors should be aware of what a charity does with donated vehicles; donors should find out whether donated vehicles are used by the charity, given to low income families, or sold at auction.
For tax purposes, determining the value of the car is important. Before donating a vehicle, the donor should take pictures of the car. Internal and external pictures will help verify the car’s value. Pictures help prove whether a vehicle had any new parts or upgrades before being donated.
Car owners should save all receipts related to work performed on the vehicle. Receipts for new tires, maintenance work, or replacement parts are proof of the vehicle’s maintenance history and help verify the vehicle’s value.
Getting an Appraisal
Appraisals are needed when a car is worth more than $5,000. The donor is then required to fill out the appropriate IRS paperwork and attach it to their tax return.
Avoid an IRS Audit
Fair market value, car model, miles, and car condition are all taken into account when determining a car’s value. For donors, selecting the vehicle’s highest value figures can trigger an IRS audit. Keeping photos, receipts, and getting the car appraised by a third party reduces the chances of getting audited and validates the donor’s car value and tax refund.