With the end of the year quickly approaching, many taxpayers are looking for a few last-minute strategies to relieve some of their tax burden.
And one of the most often overlooked ways to increase your annual tax deduction amount is by donating your old vehicle. (i.e. that eye sore) that your wife’s been nagging you to take care of for an eternity.
Today’s the day husbands!
Donating your car to Tear-A-Part is a win-win for both parties. You get to free up some space in your driveway or garage, while partnering with a company that will find a new home for your pile of parts.
And you get a tax deduction. Not bad, right?
While the tax benefits are not as lucrative as they were ten years ago, you can still stand to gain significant tax savings by donating your clunker. Here are three tips to keep in mind as you carefully consider your options and decide on your next step.
1. Determine Your Car’s Market Value
The fair market value is the amount that you could get if you sold the car in a private sale. Since in this case you’re not actually making a sale, an easy method of determining the value of your donated car is to refer to pricing guides like Kelley Blue Book or Edmunds and use the amount shown for a private party sale of a comparable car.
Keep in mind that the IRS will only accept this value if your vehicle is comparable to the online listing. This generally means that your car must be the same year, make and model, in addition to offering similar features to the online listing.
2. Get Your Paperwork in Order
Gaining tax benefits for a donated car requires a lot of documentation. The more prepared you are, the easier the process will be.
Upon receipt of your donation, Tear-A-Part will provide you with a tax deduction receipt that includes all of the pertinent information to satisfy the IRS’ requirements. We’ll make it easy for you!
A good tip we’ve learned over the years, is that once you’ve compiled the necessary paperwork, consider keeping electronic copies. This will help keep you organized and make the filing process easier by avoiding misplaced documents during tax season. (Plus, you can easily locate them in the future if need be)
3. File an Itemized Return
In order to write off your donation, you must file a long form 1040, which requires that you itemize your deductions using the Schedule A, instead of applying the standard deduction.
One key thing to remember is that as a tax deduction, the value of your car does not directly decrease your tax bill dollar for dollar. Instead, deductions are used to reduce your taxable income, which usually results in oweing fewer taxes.
Of course, the amount of the reduction will vary according to your tax bracket and the total amount of your itemized expenses. So adding the value of a donated car could be just the thing that tips your tax return in your favor.
While your old car may not be much to look at anymore, there was probably a time in the not-so-distant past when it was the apple of your eye. Don’t just throw those memories away!
And just because you don’t have a use for it anymore, doesn’t mean that someone else can’t make use of its recycled parts.
Donating your car to Tear-A-Part is the perfect opportunity to give your vehicle a second chance at life, while reaping the financial benefits of a higher tax deduction. With over thirty years in the recycling business, you can trust that the systems we have in place will make the best use of your donation, while ensuring that your experience is as stress-free as possible.
So if you’re looking to maximize your annual tax deductions, carefully review the three tips above and then make your decision. Parting with your old car will not only benefit you come tax time and make room for you to start off the new year with more space, but it can also make someone else’s auto situation that much better.
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