Donating Your Car To Charity
Donating a car to charity is not that difficult. However, you need to be aware of the new tax regulations before you donate your car to a non-profit organization. The IRS provides some general rules of thumb on car donations:
Starting in 2005, if the claimed value of your donated car exceeds $500 and the item is sold by the charitable organization, your tax deduction is limited to the amount of money the charitable organization actually receives from selling the vehicle.
The charitable organization must provide you (the donor) with a written acknowledgement within thirty days of the sale, specifically stating the net amount they received for selling your donated car.
As an example, let's say you make a car donation to a non-profit charity, and the fair market value of that car is $5,000. The charity then sells the car without "significant use" or "material improvement", for a total sale price of $2,500. Your deduction is limited to $2,500, not the $5,000 fair market value.
This is substantially different than earlier years when you could deduct the entire estimated fair market value instead of the amount that the car donation actually raised for the charity.
Another caveat is that many non-profit organizations use a third-party administrative service to handle the pick-up and auction sale or your car donation. The resulting administrative fees are often 20% or more of what the car sells for at auction.
Your tax deduction is correspondingly lowered by the amount of third-party fees because the net amount the charity receives has been reduced. In the example above, your car donation deduction would be reduced from $2,500 to $2,000.
There are a few exceptions to these car donation tax deduction rules of thumb that are recognized by the IRS.
Car Donations: "Significant Use" & "Material Improvements"
If the charity significantly uses or materially improves the vehicle, they must certify that in the form of an acknowledgement to the donor (within 30 days of the contribution). In the case of significant use or material improvement, the donor may usually deduct the vehicle's market value ($4,000 in the example above).
To be considered "significant use", an organization must use the vehicle to substantially further its regularly conducted activities. The recipient organization's use of the vehicle:
1 - Must not be insignificant
2 - Must not be intended at the time of the donation
Significance also depends on the frequency and duration of use by the non-profit organization.
"Material improvement" includes major repairs or other improvements that significantly increase the vehicle's value. Cleaning the vehicle, minor repairs, and routine maintenance are not material improvements.
Make sure you don't get misled by a car donation sales pitch saying you can claim higher tax deductions than the IRS allows.
For more information, see IRS Publication 561, Determining the Value of Donated Property ( PDF 101K) at www.irs.gov
Greg Reynolds writes about fundraisers and fundraising events for schools, churches, and nonprofit organizations. Signup for the free monthly newsletter at www.fundraiserhelp.com and get free samples from top suppliers.
Article Source: http://www.ArticleGeek.com - Free Website Content
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Taxes Information:
Related Articles
Donating Cars To Charity - New Tax Rules
On June 3, 2005, the IRS released guidance on charitable deductions for donated vehicles. The American Jobs Creation Act (AJCA) radically changed the amount of the deduction taxpayers can claim for their donated car.
Access to E-records by Taxing Authorities: A Case for Pakistan (Part II)
All tax authorities to e-commerce transactions should investigate the record retention requirements of each other's respective jurisdictions.In September 1998 Revenue Minister Dhalinal of Canada;"?Interpretation Circular 78-10RS and 779R (Book and Record Retention/Destruction) will be revised to explain the Department's views with respect to the electronic environment.
About Income Taxes; Tidbits
1812The first attempt to impose an income tax on America occurred during the War of 1812. After more than two years of war, the federal government owed an unbelievable $100 million of debt.
Fraudulent Tax Shelters - KMPG Goes Down Hard
In the largest criminal tax case ever filed, KMPG has copped a plea to using fraudulent tax shelters to bilk the government out of 2.5 billion dollars.
Highlights of IRS List of 2005 Tax Scams
Each year, the IRS lists various scams taxpayers get caught up in. The top 2005 scams include several that manipulate laws governing charitable groups, abuse credit counseling services or rely on refuted arguments to claim tax exemptions.
Six Urban Myths About Taxation
Six Urban Myths - Taxation"I am proud to be paying taxes? I could be just as proud for half the money." - Arthur Godfrey Temporary Taxation in Canada In 1917, the Income War Tax Act (7-8 George V, Chap.
Tax Time Tune Up
Excerpted from the new book, "How to Do Space Age Work with a Stone Age Brain" TMThe complete article with pictures and sample Auto Log is available at www.organize.
Car Donation: An Easy Way to Support Your Favorite Charity and Get a Tax Deduction
Most people look forward to getting their tax return, but one of the downsides to filing taxes is that you may find yourself owing the taxman come April 15. What do you do when you realize that you not only owe money, but you owe more than you can pay at the time?The answer is: charitable deductions.
Home Based Business Tax Deductions
Running a home based business reaps many wonderful tax deductions that other businesses some times may not claim. Unfortunately to many small business owners end up paying the government taxes every year because they are unaware or several small business deductions that are available.
The Seven Deadly Tax Sins: Commonly Missed Deductions
It's that time again, the April 15 tax deadline is looming large. If youre like most people, you havent gathered all of your tax records, let alone filled your return.
Some Folks Pay A Lot Less Tax Than Others On Very Same Income-Did You Pay Too Much Tax In 2004?
Someone once remarked, "Next to being shot at and missed, nothing is quite so satisfying as an income tax refund." There's no question that saving money in taxes is high on everybody's list of financial priorities, especially small-business owners.
Business Tax Loophole: Leasing Assets To Your Corporation
While there are many equally valid reasons to incorporate, saving money on taxes is a consideration that can yield relatively immediate results. Leasing assets to your corporation is a tax strategy you should absolutely consider if you already have a corporation or are thinking about forming one.
Understanding Basic Tax Terms
If your like many, you don't always understand what people are talking about when it comes to Taxes. It's important to know the main tax terminology, especially when tax season comes around.
IRS Offer-in-Compromise, Hype or Hope?
"Settle for Pennies on the Dollar! IRS debts settled for $20Wipe out the Penalties with an Offer"-such is the language of Offer-in-Compromise promoters. What they fail to tell you is that one has to qualify for an Offer and few taxpayers will be able to meet the tough standards for an OIC.
Tax Investigation - What You Need To Do
The knock on the door from a Tax Inspector is something that every taxpayer fears. Your immediate thoughts will be "Have I been honest with my tax returns or not".
Back To School - Educators Deduct School Expenses
As teachers and students head back to school following a glorious summer, it's time to remind teachers to organize 2004 school expenses. Under a temporary tax code change, teachers can deduct certain school-related expenses from adjusted gross income.
What Is Tax Law?
The federal tax code is complex. This complexity generally arises from two factors: the use of the tax code for purposes other than raising revenue, and the feedback process of amending the code.
Tax Records - What You Should Keep And For How Long
Many taxpayers are confused about how long they should keep tax records. The term "tax records" refers to your tax returns and the documents that support the information in the returns.
How to Reduce the Estate Tax Using the A-B Revocable Living Trust
In a past article I relayed the plight of the widow who stated:"I didn't realize what an A-B Revocable Living Trust meant and that it had to be divided between the survivor and the deceased spouse and that I am limited as to what I can use from his share."She told me that she only learned of this after her husband passed away.
How to Check the Status of Your Tax Refund Online
So, you were pleasantly surprised to learn that you are getting a refund on your taxes. Congratulations! The question for most taxpayers expecting a return is, "Where is my refund?"Check Your Refund Status OnlineThe easiest way to check on your refund is to ask the IRS through IRS.