Mostly, winners in the car donate process are usually the donors and not the charitable recipients. However, you can indeed maximize the amount actually raised for charity and minimize your risk of being audited. Here, you just need to take the time and ignore quick and easy television calls. You should also find a reputable and high-performing charity that will make the most of car donate.
Find Charities That Directly Accept Car Donations
First of all, you should avoid nonprofit intermediary organizations that advertise so broadly to handle car donate. If you find a charity that handles the transactions yourself, you can ensure that 100% of the profits stay with the charity.
Somehow, the charity you currently support has a car donation program and you don’t know about. You can check first. But, if you don’t find any, you can do a little research. It is recommended to find a high-performing charity based on what you love, in the area you want to target, and is successful.
Make Sure Car Donate Organization is 501(c)(3)
Many organizations can claim nonprofit status. Here, donations to 501(c)(4) organizations are generally not tax-deductible. This is a political organization with permission to lobby our government. For example, they are the Disabled American Veterans and the National Rifle Association. You should make sure your intended recipient has 501(c)(3) public charity status.
Properly Transfer Cars to Charity
Usually, charities will ask you to clear ownership assignment space on the charity donation paper. Therefore, they don’t have to re-title the car. In case the charity asks this to you, you can find another charity. If you do not officially sign your car with a designated nonprofit, you will be liable for any parking tickets that arise later, or are liable if used in a crime.
You should keep in mind that the charity you give the car to may not use your car to deliver food to the needy. It is possible that they will only sell it quickly. Even if someone buys it from them at auction, without bothering to register the car, it is still yours in the eyes of the law.
Use Fair Market Value (FMV) for Cars
Generally, you will find some exceptions that will allow you to use the Kelley Blue Book or NADA guide. However, you should use the FMV, not just the highest value listed for the year and make of your car. Here is the condition when you should use FMV:
- instead of selling vehicles, charities store and use them
- charities make car repairs before selling them
- your car is sold at a discount to low income people
- or when the car is worth less than $500
Otherwise, you can only deduct the number of charity cars sold at auction as shown on the written receipt the charity sends you.
Complete Car Donate Documents
Non-cash donations are the most common trigger of an IRS audit. For this reason, it is important to keep thorough documentation of car donations. Let’s say your car is worth more than $250. In this case, you will need to obtain and keep a written acknowledgment from the charity.
Additionally, if your car is worth more than $500, you must complete part A of IRS Form 8283. Don’t forget to attach it to your annual taxes as well. Furthermore, if your car is worth more than $5,000, you must have an independent appraisal and fill out Part B of IRS Form 8283.