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Using Your Boat RV or Auto for Tax Deduction Purposes
Much is made every April about tax deductions, despite the fact that very few people use itemized deductions to account for donations of physical goods such as clothing, furniture or autos. Tax deduction is further complicated by being discounted from your net income rather than the net tax owed. In essence, this means that an average taxpayer receives about 30% of a given donation in actual tax relief, depending upon their tax bracket. Though it still represented less than a single percent of actual charitable giving in the United States, boat and auto tax deductions were a growing and very visible component of charitable giving when the General Accounting Office (GAO) issued a report on this topic to the US Senate Committee on Finance in November of 2003. At that time, fewer than 1% of the nearly 200 million tax returns filed in 2002 used an auto for tax deduction purposes. Despite this relatively small amount of claiming, the GAO theorized that perhaps twice the number (about 700,000) of autos were actually donated. This suggests that after the sale of said autos, tax deduction rules made many of the donations worth reporting. Often this is the case when people are better served by taking the standard deduction or they simply don't know how to go about with itemized deductions and don't have the extra money to hire a professional tax preparation specialist. Even when donating a fairly expensive auto, tax deduction limits that require signed forms (essentially affidavits of fair sale and donation) from the receiving agency may show a far smaller value than you thought the donated vehicle would be worth. This is especially true of vehicles worth more than $5,000, though even those that net over $250 at auction require an acknowledgement of the donation from the charity in question. Even when as little as $500 is received for an auto, tax deduction requirements require a form (IRS Form 8283, section A) to be filled out, though only the most expensive ones require a signed form from the donation agency. The disparity between the price listed in such publications as the Kelly Blue Book and the actual sales value of a car is largely dependent upon how the vehicle is sold and by whom. For instance, in 2002, a majority of charitable that accepted donations of vehicles were handled by third-party organization, even if the charity itself handled the initial contact calls. Despite the high value of the auto, tax deductions are limited to the actual value received by the charity, and that can represent a small fraction of the original gift. That certainly doesn't mean you can't make a significant donation with your old auto. Tax deductions are certainly available, and for those who are accustomed to itemizing their deductions, such as small business owners and the self-employed, choosing this route can be both rewarding and profitable. For instance, you don't need to rely upon a third-party donation service, such as those who continually advertise in just about every type of media. Indeed, when donating an auto, tax deductions are the same whether you give away the actual car or the money that you receive from its sale. Selling the car yourself may be a bother, but you will reap as much as 20% greater deductions from such a cash gift. There may also be charitable organizations in your area that have use of a running car. Though a large number of cars donated to charity don't run well or at all, many do run and can assist low-income families in spread out metropolitan areas that aren't adequately served by public transit. Such an auto, tax deduction aside, can really make a big difference for a family on the brink of making a living. Your deduction will be higher, and you've made a real, tangible difference in someone's life, assuming you didn't donate a lemon. One may also consider donating a car or truck to the local high school (or technical college) shop class, especially if it's a fine car in need of a lot of work. Even after the cost of materials for the auto, the tax deduction will be far higher when the car is eventually sold since the cost of labour need not be accounted for. | ||
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