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Car Donation Do's and Dont's
|A car donation to your favorite charity continues
to be a great means of tax-deductible support under the new tax law.
As of January 2005, you may deduct the full dollar amount that your car, boat, truck, or other donated vehicle sells for. In some cases and unfortunately with only a very few organizations such as Online Car Donation .org if the “meaningful use” rule is met by either providing a vehicle to the disadvantaged or retaining your vehicle within a charitable program you may also take the “fair market value” as a deduction. This is of course the most beneficial to you, the donor. A car donation to charity can be a great way to get rid of an unwanted eyesore or that vehicle that you know you just don’t want to spend the money to repair. That extra car that so far you have not had the heart to let go or the project car that you know you’ll never get around to restoring. It is also a great way to help people at the same time. But like anything else that involves government regulation, there is a right way and a wrong way to do it. There are of course issues with the type of charitable organization that you give your car to as well. There are many well-meaning organizations out there. Some, such as “Referral” charities we cannot stress how fast you should run and in the opposite direction. A simple explanation would be this; if you want to benefit your community in a socially responsible manner, why give the majority of the proceeds of your donation to a used car dealer?
That is precisely what the majority of these organizations are… a used car dealer.
Many will even consider their millions of dollars spent on advertising to be a valid expense for a charity. These are funds that are taken out of the mouths that your gifts are intended to feed.
Many will even appear quite reputable, associated with many churches, shelters and known, recognized programs. Your donation is still depleted by the time it gets to it’s intended recipient. If an organization advertises that they accept donations directly for other programs… run!
Many organizations can support these other programs without taking advantage of the public trust and taking the public’s money to line their pockets either.
If you have any questions regarding a particular organization feel free to call Online Car Donation for information toll free at 1(888) 228-7320.
Should an organization be a 501(c) 3 charity?
It is a common misconception that all charitable organizations MUST be a registered 501(c)(3) organization. This is untrue. It is true that if you contact the I.R.S. or search any of their databases you will find those organizations that have filed for and been granted the "instant recognition" under I.R.S. section 501(c)(3).
What you will not find are those qualified religious organizations operating under the Religious Non-Profit Corporations Law under the meaning of I.R.S. section 501(c)(3). This is not intended to deceive the public. It is only that the government can only give you the information that they have themselves. The many fine religious organizations that strongly adhere to the separation of Church and state issue are not required to apply for this status through the federal government. By the way, it is by donating to these types of organizations that you can receive the greatest financial benefit.
Churches are automatically exempt from taxation, according to attorney Marcus Owens, Washington, D.C., a former head of the IRS' tax-exempt division.
Must churches and/or affiliates of churches and religious organizations be 501(c)(3) for donations, and gifts to be tax-deductible?
Again, no, according to IRS regulations readily accessible to the public.
A church needs no ruling from the IRS to be exempt from taxation. "It is exempt by virtue of being a church, religious organization and auxiliary of such an organization.
They should however give you a letter in thanks (or a receipt) that will state this. Keep this letter with your other tax records as proof of your donation. Information that should be included on this letter includes: charity's name and federal tax ID number; donor's name; date of donation; and year, make and model of the donated car. It is also beneficial for this type of document to include a brief statement regarding the organizations mission or “purpose”.
Keep very good records of what you've donated. Keep copies of any documents provided to you. “I can’t tell you how many times we have been contacted by individuals who have donated their cars to other organizations and either were never given a receipt for their car donation, or have somehow lost it and do not recall who they donated it to!” According to Works of Life and Online Car Donation .org.
Donate your car to a charity that will arrange pickup and ensure your paperwork is easy to manage. This will probably be a charity that solicits car donations through advertising, like Online Car Donation .org and the “With Causes” Charitable network. Remember, any organization that spends a great deal of the money entrusted to them for the benefit of others should be of concern when choosing an organization to trust with your charitable car donation.
After you've donated the car, be certain you notify the DMV and your insurance company, and fill out any necessary forms.
Do not claim your car is worth more than its book value unless you can prove it. This can be done with photos, appraisals, valuations of similar vehicles being sold that can easily be found online (same year, make, model, condition) Don't forget that you can donate other things besides cars: boats, RVs, trailers, and similar vehicles or towed vehicles are just as eligible to be donated as cars.
You receive a donation receipt at the time your donation is made. That receipt will contain all pertinent donor information, a description of your donated vehicle, and the name and Tax ID number of the charity receiving your donation. This receipt will serve as your official tax receipt if your vehicle sells for less than $500.00.
If your vehicle sells for more than $500.00, you receive a supplemental receipt that states the actual sale price. That receipt will include all information required by the IRS for your tax deduction, including your social security number. If no actual sale takes place, and the “meaningful use” obligation is met this information will be noted in the same I.R.S. form 1098(c) and when applicable I.R.S. form 8283 among others.
Your deduction is determined in one of two ways:
If the car is sold without any significant intervening use or material improvement by the charity, your deduction is limited to the amount of the gross proceeds from its sale.
If the charity intends to make significant intervening use of or materially improve the car, you generally can deduct its fair market value.
You must get a contemporaneous written acknowledgement from the charity and attach it to your income tax return, Form 1040. If you do not have an acknowledgement, you cannot deduct your contribution. If the claimed value of the car is more than $500, the acknowledgement must include:
Your name and taxpayer identification number, the vehicle identification number, and a statement certifying that the car was sold in an arm's length transaction between unrelated parties, the gross proceeds received from the sale, and a statement that your deduction may not be more than the gross proceeds from the sale, or if the charity intends a significant intervening use, a statement certifying the intended use, the duration of that use, and that the charity will not sell the car before completion of that use, or if the charity intends to make a material improvement to the car, a statement certifying the intended material improvement and that the charity will not sell the car before completion of the improvement.
You must obtain the acknowledgement no later than 30 days after the date the charity sells the car or actual final disposition of the asset has been made, or 30 days from the date of the contribution if the charity intends to make significant intervening use of or materially improve the car.
What Else Should You Remember?
Although donating your car to charity can benefit both you a great deal, you should remember the real reason you're doing it: to help others and to benefit the community that we are all a part of. Choose your charity carefully, and don't just give them a car with no value whatsoever that will be more trouble to them than it's worth. Remember that if it will cost you more to dispose of a car than it is worth, the charity will have the same problem. Car Donation charity does not equal “salvage yard.”
With a charitable car donation, you could say the sales proceeds from your vehicle count twice!
Benefiting both you and others at the same time. Previously, you were required to investigate various resources and report your best estimate of the fair market value of your donation. There was an inherent risk of tax fraud with this method, as the IRS often saw large discrepancies between a donor's estimate and actual sales proceeds. The new law eliminates this risk and simplifies the process for you.
At all times remember that it is by your efforts, charitable donations and support that any organization can make a difference.
IRS: Churches Exempt from Tax
Package 1023, Application for Recognition of Exemption, lists churches, church auxiliaries, religious schools, mission societies, and youth groups as automatically exempt.
Package 990, Return of Organization Exempt From Income Tax, p. 3, Section B of instruction booklet, includes churches, church-affiliated organizations, church schools, and mission societies on its tax-exempt list.
Publication 557, Tax-Exempt Status for Your Organization, p. 17.
Publication 1828, Tax Guide for Churches and Religious Organizations, p. 3, reiterates the tax-exempt status of churches, their auxiliaries, and associations of churches.
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