Donating your car can be a great way to rid yourself of an old clunker while helping out a good cause – but it also comes with its share of risks.
Before choosing an organization for car donation, ensure you choose one that has registered with the IRS and meets your standards and values. CharityWatch and similar databases offer helpful options when selecting charities that will use your donation effectively.
Tax Credit
Adopting an old vehicle can be costly and time consuming; but donating it to a charitable organization may be the ideal solution to assist someone in need while receiving a tax break at the same time.
IRS has implemented a tax credit for vehicle donations. To take advantage of it, just provide the charity with your receipt and sign a few pieces of paperwork yourself.
Your savings could go towards paying taxes or purchasing a new car, while many charities will collect it free of charge.
Assume, however, that you can only claim a tax credit on donations made if they exceed the standard deduction amount for their filing status.
Depreciation
Depreciation is an accounting method that distributes an asset’s cost over its useful life, such as an automobile. Depreciation is used to value assets, calculate taxes and secure financing.
As assets depreciate in value over time, companies need to set aside money in preparation for replacement of depreciated assets as time goes on. One way is through one of four depreciation methods.
Straight-line accounting methods are the most prevalent; however, accelerated methods also exist. Accelerated methods require more calculations and have longer recovery periods, making it harder for companies to claim deductions timely.
Salvage Value
Salvage Value, also referred to as Scrap Value, is an estimate of what a company expects to gain when they sell or dispose of an asset at its end of life. It plays an essential role in accounting records and tax returns when calculating depreciation expenses.
Most companies employ some standard to determine salvage value, although every business differs in its approach. Some will depreciate an asset down to zero should it become obsolete during its useful lifespan, while others might leave its cost at its original purchase price.
An organization can ascertain its salvage value by researching prices paid by junk dealers and salvage yards for used cars or other assets that fit its criteria.
Donation Receipt
Donating a car to charity requires that you receive an IRS donation receipt. This document should provide information regarding your charity of choice, the vehicle donation date and date of donation as well as an assurance that no goods or services were exchanged in return for this gift.
When making donations to charity organizations, receipts often provide details regarding how your contribution will be utilized by them as well as providing their name and address.
Facebook automatically generates tax receipts for donations made via Facebook Payments or Network for Good, sending them directly to the donor’s email address on file with their account. Donors will easily be able to access these receipts when filing their taxes later this year.