A little disclaimer: this is not tax advice. For informational purposes only. We are not certified accounts. Please consult your account for tax advice.
They say that in life, two things are certain; paying taxes and passing away. In particular, taxes are inevitable and failing to remit could land you in big trouble with the authorities. But are there ways to lower your taxes? You bet!
Donating your car offers one of those avenues! It’s a noble thing that you’ve probably contemplated doing especially if you’re giving it away to a charity you like. This short guide explores the possibility of lowering your taxes by donating a car to charity. Inside, we’ll discuss:
- Reasons for donating a car
- The car donation process
- When a donation doesn’t help with taxes
- An alternative way to dispose of your car hassle-free
Is It Worth It To Donate a Car? Possible Reasons to Do It
What would have someone to want to give away their vehicle? Here are a few reasons that make it worth to donate a car to charity causes:
You want to support your community
Whether you’re donating to the veterans or a child sponsorship organization, donation is one of the best ways to show support to a cause. Most charity organizations usually auction the donations and use the proceeds to fund various projects. This can include health & wellness, housing, medical care, employment, etc.
You want to save money
Imagine paying insurance all year long or repairing a car you barely use. Some people even opt to store their vehicles away and pay regular storage fees. Is it a worthy financial decision? This is where donating the car makes more sense. It saves you money by eliminating needless expenses on repairs, insurance, or storage. What’s more, you get more peace of mind knowing that your act of goodwill will positively impact other people’s lives.
You want to capitalize on tax deduction
Donating your car is a great way to reduce your taxable income and ultimately lower your taxes. When contributing to a non-profit, it means your donation is considered tax-deductible. After a charity organization collects your car, they will offer you a receipt that you can use to claim your deductions on taxes for that year.
You don’t want the hassle of towing away the car
Most charities are happy to tow away your donated car from almost every location across the states. The best part is that even if your car isn’t mobile anymore, they will still come and tow it away at no charge on you. However, it’s worth noting that some charities may deduct the towing cost from the car’s total value which could affect your tax reduction.
You want to save on space
There’s no point in stuffing your squeezed shed or garage with a car you barely use. If you value your space and want to create room for more useful things, donating your unused vehicle is the way to go.
The Car Donation Process
Below is a simplified step-by-step process and best practices for donating your car to a charity while you collect tax benefits.
Conduct a background check on the charity you wish to donate to
We recommend donating to a charity with a 501(c)(3) non-profit status to guarantee that your act of goodwill is rewarded through a tax deduction.
Itemize deductions on your return
When donating your car, the charity must state what they intend to do with it. Are they going to use it in their own operations, repair and sell it below the market value, or give it away to a needy person? This enables you to know the amount of deduction you’ll be eligible for.
Complete the IRS form 8283
If your vehicle’s fair market value is more than $500, you must complete section A of IRS form 8283 for future tax deductions processing. However, if it’s worth at least $5,000, you must complete section B of IS form 8283.
Get a receipt
If the charity intends to sell the car, be sure to claim a receipt plus a document certifying the amount the vehicle was sold for (should be available within 30 days of selling).
Taking photos of the car and documenting the receipts for every repair or work done on it is very essential – more so if you intend to claim a deduction for it.
When a Car Donation Doesn’t Help with Taxes
Like anything else, it’s critical to do the math to see whether itemizing your donation makes more financial sense than filing for the standard deduction, which goes up to $12,400 for single filers. If you’ve made cumulative donations worth less than $12,400 throughout the year, and you qualify for the standard deduction, we recommend going for it rather than itemizing your car donation.
Don’t get it wrong, though. We still applaud the idea of donating to a charity 100%. But let’s face it; unless you’re donating a high-valued vehicle or make several donations in a year, you may not benefit much from the tax deductions going this route.
So is it worth to donate a car? Probably not
If you’re looking for a hassle-free way to dispose of your unused car, selling to a trusted dealership might be a better way than donating it to charity. The process is faster while you could even end up with more money in your pocket!
Here at Motors on Wheels, we offer some of the most competitive prices for used cars in Houston, TX. What’s more, we pay instantly for well-maintained cars. You don’t have to wait for a whole year for a tax deduction. Contact us today and we’ll compensate you fairly for your used car.