Instructions to donate a car for Tax Credit: Any donation that is given by individual to charity is “Tax Free”. This tax relief can be gained through the below various options available. Such as:
- Gift Aid
- Payroll Giving Scheme
- Land, property and shares
Even then there are easy ways to donate your old car to the needy people; there are certain regulations which have to be satisfied to be qualified for the tax deduction.
“The rules for determining the amount that a donor may deduct for a charitable contribution of a qualified vehicle, including an automobile, with a claimed value of more than $500 changed at the beginning of 2005 as a result of the American Jobs Creation Act of 2004. In general, that Act limits a donor’s deduction to the amount of the gross proceeds from the charity’s sale of the vehicle.
For vehicles valued at over $500, taxpayers are required to attach the charity’s written acknowledgment to their tax return”
Why donating is a good idea?
It really needs an open mind and big heart to donate. So, the donation gives back pleasure to donor in form of benefits. The donor can deduct the vehicle’s fair market value under specific conditions. If it is so, then the donor must reduce the federal income taxes. Filing a regular tax 1040 form is the best choice. If you have many deductions, and if their total exceeds the standard deduction, then it is the net you receive from tax benefit.
It is always the donor’s wish on deciding the amount to be donated. However, Internal Revenue Service (IRS) has the limit on your tax return.
Please be aware of the below rules imposed by IRS.
- When the charity auctions for $500 or less, you can claim either the market fair value or $500, whichever is less
- When the charity intends to make a “significant intervening use of the vehicle”. This means the charity will use the car in its work.
- When the charity intends to make “material improvement” to the vehicle, which is “anything that increases the car’s value and prolongs its life” it can be a minor repair or maintenance.
When the charity gives or sells the vehicle to needy individual at a significant price below market fair value, and the gift or sale is part of the charity’s mission of helping the needy who need transport.
Ways to donate car to charity and Claim Tax Benefit out of it-
- Check whether the charity is registered with the Charity Commission or any organization like School, Hospital etc. Because these organizations have advantage of schemes allowing the customer to reclaim the tax.
- Gift aid helps the customer to claim the amount of tax regardless of its value. Even the smallest amount of tax can also be claimed with this process. However the only issue with this scheme is that the employer must have this scheme as the employee can’t do this on his own. Sole proprietors will not be able to avail this benefit.
- Submit your details such as name, address, and a declaration which proves that you are tax payer.
- Payroll giving can also be one of the easiest ways to claim your tax. Here, you can donate a regular amount which is directly taken from the salary through the payroll of employee.
There are other options of donating also, like
- Donation can be made in form of shares and stocks. Just by signing the certificates over to a charity you can relieve yourself from Tax burden.
- Also, property donations fall into this list.
Post Donation occurrence:
- Once the donation process is completed, the donor will be receiving an acknowledgement of the gift received on behalf of the charity
- Donated amount will be deposited into the bank account and will be used for the welfare of deprived.
Documents needed to claim the tax credit for car donation-
- Donation receipts from the registered charities
- Schedule 9 in case of paper tax return
- Supporting documents such as cancelled cheques, pledge forms and proof of payment such as credit card slips, stubs, and bank statements etc
- Slip of Remuneration paid which will be issued by the employer
Donor gives donation, whereas it is surprising that donation pays off the donor in return too! The donors are benefited with Tax deductions which help them in many ways. Not only tax benefits, it is like you are attaining happiness out of your action. It also builds the trust that is kept on the charity, and the process of selling the used car is eased as there is someone in between to take care of it on behalf of the donor. Do you have surplus vehicle? No worries donate it.