TaxMama never takes a trip without
ordering her
tapes first.
|
|
To Give Or To Get,
That Is The Question!
by
Eva Rosenberg, MBA, EA
A
more current article on this subject, Car
Donations Not Charitable at Tax Time, by Liz Pulliam, from the Los Angeles
Times.
Have
you been listening to the radio lately?
Are you also hearing all those commercials for charities persuading you
to donate your old car and get yourself a great tax deduction?
They hit your heartstrings with stories about dying children, hungry adults
or abused pets. You've just GOT to give them your car! ("Running or not")
Besides, have you ever priced the cost of having a non-functioning
car towed away or scrapped? Do you really believe that you can sell that
barely running piece of tin for enough to recoup the last year's worth
of repair expenses?
The Tax, The Tax, Does it Go Away?
So, is it a good idea? Will you really get a tax deduction? Are
you really being generous? Let's ignore the personal and religious satisfaction
you get from being generous. If that is your motivation, you will make
the donation with an open heart and hand - you don't need this discussion.
Bless you.
But, if your motivation is financial, read on.
I get the impression that a couple of companies have arranged with the
charities to promote this concept and pick up your cars. How much money
the charities actually receive, I don't know. But let's work on the premise
that this is a legitimate proposition and the charities really benefit.
My question is - do you?
Good For You, Good For Me?
To get a tax benefit, you need to be able to use Schedule A, Itemized
Deductions. Generally, five kinds of people can itemize:
Those who have a mortgage and/or
People who pay very high state
income or property taxes and/or
Folks who have excessive unreimbursed
job-related expenses
Then there are people who have
high medical expenses
Those who tithe
Healthy, happy people who simply
have jobs, and rent homes never get to itemize. The deduction is meaningless
to many Americans.
For a middle income person to get any benefit, that car's value would have
to be higher than their standard deduction. That means over about $4300
if you're single or as much as $7200 if you are married filing jointly.
That doesn't sound like a non-operative clunker to me. That's a lot of
money - if you can really collect it!
If you can't benefit from the tax deduction, it may be a big help to you
to sell it and pocket the money, yourself. It could be the vacation you've
put off for so long.
But, if you're already itemizing, often taking the deduction can be worth
$1,000 or more in federal and state tax savings.
What's it Worth?
Frankly, many people who donate their cars do it because they'd be
ashamed to sell it anyone. Or it's just too much trouble to deal with the
looky-lous and ad calls. (For $4,000, I'd brave the inconvenience!) There
are, however some really generous people who do take a terrific, functioning
car and give it to charity. The following instructions are for you.
Prove it!
The commercials imply that you can take some high, arbitrary value
as your deduction. Let's look at it this way, if the car really runs and
is in decent condition, figure that you can get away with a deduction somewhere
between the wholesale and retail values of the Kelley Blue Book. Be sure
to add in values for low mileage, customized features, Lojaks® or other
alarms systems, recent new engines or other enhancements that will increase
the car's life. Make a detailed list of how you arrived at the value. Keep
a copy of the Blue Book page or printout for your files. In all cases,
clean up the car and take photos to show the car's great condition.
Better yet, I've just found a terrific tool for you - Edmunds
Used Car Appraiser. Click on the link and you'll get a pop-up window that
will let you get the information you need right now. (Right now, it only goes back
to 1990, but they'll be adding the older years soon.)
Getting a written appraisal from a certified appraiser would ensure the
IRS's acceptance of your value - but it's an expensive option. Could be
worth it if your car is a real classic or antique with a special, enhanced
value.
For those with ‘classic' cars (guys' euphemism for clunkers about 10 or
20 years old and still functional), they're off the book - or in a special
book. How do I get values for them?
See if you can find some collectors' magazine or used car ads that show
year, make, model and quote prices. Cut out the ads and put them in your
donation file. Go to a used car lot with a camera and take pictures of
similar cars with price stickers. Visit sites on the Internet that sell
or auction used cars. Get written documentation for the value of the car.
In all instances, make sure you have a date on the photos, quotes, ads,
etc. The date must be somewhere near the date of your donation.
Make sure that you get a written receipt from the charity showing the value
you designated - or a range that includes your value.
Use Form 8283 to report the donation. Attach a copy of the charity's receipt
to your tax return. Carry the amount from Form 8283 over to your Schedule
A.
What else can I do?
As long as you are now able to itemize, make sure you make additional
contributions before the end of the year. This is good time to go through
your closets, garages and storage units and see what else you can turn
over to your favorite charity.
As a rule of thumb, you will be allowed $25 - $30 per bag and $40 to $50
per box. If you really want to capitalize, make a list of everything you
donate. Create three columns - Description, Approximate cost, Donated Value.
List each pair of pants, shirt, pair of shoes, lamp, game, book that you
donate. (Or at least group them together - 4 golf shirts, 3 new snow boots,
17 paperback books...) When you add up your columns, you are likely to
end up over $1,000 worth of Donated Value. Instead of $220, if you have,
let's say, 4 bags and 2 boxes.
You'll enter each receipt on Form 8283, along with the car. This way, you
can maximize your donations deductions.
While you're at it remember to include donations you've made with cash
or checks via paystubs or church/temple attendance. (Donations to street
people don't count.)
Final Warnings There are three things to watch out for:
1) Sometimes, you are so generous, that your contributions
deductions are too high. You may have to carry them forward to future years.
2) When you have very high itemized deductions, you often
get caught by alternative minimum taxes - to make sure that you don't avoid
paying taxes altogether. (This is often overlooked in tax planning.)
3) If you've been taking a business deduction for your vehicle,
you may have depreciation considerations (even if you've been using the
mileage method). Please talk to a tax professional before you try to take
a charitable contribution deduction. It's much more complicated than you
can imagine.
Go Forth and Be Generous!
Now, you've heard some of the tax ramifications. Find a way to be generous
anyway. We can't rely on the government to fund all the causes we want
to support. Too many people who are really trying to live decent lives
really need our help.
nd if you can't justify donating your car - getting the cash from
selling the car is too valuable to you - donate your time to a worthy organization
instead. Be a mensch!
Sites to check out:
For quotes:
Edmunds New and Used Car Prices
http://www.edmunds.com/
Kelley Blue Book Used Car Prices
http://www.kbb.com/cgi-bin/cgi.exe?kbb+uc+guc
CarPrices.com
http://www.CarPrices.com/
Woman Motorist Used Car Buying
Guide
http://www.womanmotorist.com/ucbg/index.shtml
Make a donation:
IRS List of Organizations That Qualify
To Receive Deductible Contributions
http://www.irs.ustreas.gov/
prod/forms_pubs/pubs/p52601.htm
Grief Recovery Online (founded by) Widows
& Widowers
http://www.groww.com/index.htm
Note: Kelley Blue Book , Edmunds.com and Lojak are
registered trademarks of their respective companies.
A more current article on this
subject, Car
Donations Not Charitable at Tax Time, by Liz Pulliam, from the Los Angeles
Time.
__________________________________________
©Copyright
Eva Rosenberg, 2000-2001
Initially published February 15, 2001, and republished 3/15/01 |
|
 |
