One of the charitable trends in recent years is donating a car or other vehicle to a needy organization.  It helps them fulfill a need, and helps the donor with a nice tax deduction, right?  Well, maybe.   That’s because changes in the tax law over the past couple of years have made it less attractive to many people based on the charitable deduction they may get for tax purposes.

That doesn’t mean it’s not a great idea, or that charities could use the vehicle.  But there are some things to watch for if you are considering donating a car, boat, plane or other vehicle.   MSNBC has a nice overview of 10 Tips for How to Donate a Car to Charity.   This is great information, although it makes the process look somewhat cumbersome for the average person.  

1. Avoid Middlemen
2. Find a worthy charity.
3. Check the math.
4. Know the (tax/business) status of your recipient.
5. Do the delivery yourself.
6. Transfer the vehicle (title) with care.
7.  Your estimate of the vehicle value is probably wrong.
8.  Know when you can really report fair market value (FMV).
9.  Keep thorough paper records of the transaction.
10.  Pay attention to the details.

That’s a pretty good list of considerations, and the article discusses them fairly well. The Wall Street Journal also has some excellent advice, and Tom Herman from the Tax Report discusses how Car Donations have Taken a Hit in recent years because of the tax law changes, and some important considerations:

From the WSJ article: “If you do decide to donate your car, boat or plane, rather than selling it or trading it in, consider shopping around among charities. First, check to make sure the organization is legitimate. Then ask what it plans to do with your gift — and, if your vehicle, boat or plane is valuable enough, consider trying to find an organization that fits into one of the exceptions outlined above.”

“Choosing a charity is a very personal choice,” says Mr. Rosica of Ernst & Young. “For example, you may want to consider finding one that will use your car for its charitable purpose, such as delivering food or clothing to the needy.”

“Whatever the case, be sure to pay attention to the record-keeping and substantiation requirements. Also remember you’re eligible to deduct donations to charity only if you itemize your deductions on Schedule A of Form 1040, instead of claiming the standard deduction, the IRS said. And if you make a gift and get something significant in return from the charity, such as tickets to a sporting event, you can deduct only the amount that exceeds the value of what you received.”

Donating a vehicle can still be a very good idea, but it’s important to do a little legwork to make sure it works out the way you intended, especially regarding tax considerations.

It’s tax season in America, and regardless of how we give, there are often tax considerations as well.   If you are making donations, cash or otherwise, there may be deductions available that can lower the taxes you must pay on your income.  For larger donations of cash or valuable property, there may be limitations on the deductibility of such gifts based on your income.  It is also important to note that unless you are making donations to qualified charitable organizations or non-profit entities, you may be making a gift that will incur taxes…. that is taxes that you must pay to the IRS based on the size of the gift!  As an example, if you give your child or neighbor $20,000- you may have an obligation to file a gift tax return, and possibly even taxes to pay!  For 2007, we can give up to $12,000 per individual or entity tax free.  But above that amount you may have to file a gift tax return, although there is a lifetime gift exclusion of $1,000,000 at present.  It’s important to know that handing money around freely may have tax ramifications.   It may be wise to see your tax planner or CPA to assess your current situation and make an informed decision that benefits both the charity and your tax liability.  Here’s a list of useful links on taxes and charitable giving:

• Fairmark’s Tax Guide has an excellent multi-page overview of the Tax Rules for Gifts.
• A short overview on tax considerations is discussed in The Tax Perks of Charitable Giving from SmartMoney.com.  
• For those who may make larger cash donations and have trust or estate planning concerns, T. Rowe Price has a nice overview of The Tax Value of Charitable Giving.
• For detailed tax regulation information, see the most current IRS guidelines found in IRS Publication 526 (this is a .pdf file- if you need Adobe Acrobat Reader, you can find it here).