Also, how can you avoid being stung by a scam if you choose to donate your car to charity?
Car donation is a common practice in the United States, but sadly many people fall victim to a frightening charity scam. Thousands of people decide to donate their vehicles to charity every year. But what exactly is car donation?
It makes sense to get rid of your vehicle once it has outlived its utility. One thing you could do is sell it to the local scrap dealer. However, another option is to give it to charity.
Charities and NGO’s are facing a cash crunch these days. One creative way in which they can receive donations is by accepting used cars. Once you donate a car, the NGO’s and charities hold auctions and used car sales. Here, they liquidate these assets. They may then use this money for their internal activities.
People choose to donate cars to charities, not just to provide aid in kind, but to also benefit from the various tax deductions that they become eligible for, post-donation.
What is the procedure for donating cars?
The DMV specifies a fulfillment of certain pre-requisites before the public can donate used vehicles. As per the rules, car donation must follow similar protocols as when selling your car.
Vehicle owners must have the relevant documents such as the title of ownership, license, and certificate of registration. You also need to have a copy of the vehicle history report, reports of any tests that you had done on your vehicle and the bill of sale.
The second thing you need to do is select a charity or an NGO of your choice. Contact your chosen charity and confirm whether they accept donations in the form of used cars. Not all charities do. It’s best to have a few alternatives ready in case the charity of your choice does not accept car donations.
Applying for tax deductions
Car donations have come under the radar for the amount of tax deductions they offer. Many critics believe that donors indulge in this type of philanthropy, to seek tax shelter. Irrespective of whether this is true or not, what is true is that donating cars can indeed help you with tax savings.
While applying for deductions, it is important to have a written acknowledgment from the charity of the donation you have made. There are certain stipulations regarding how many deductions you can actually claim.
As per the law, you can only claim the gross returns that the charity made during the auction of the car. You cannot claim the value of the car at the time of donation. Additionally, you can’t claim the cost of repairs and maintenance.
Scams during car donations
Charities accept car donations in two ways. One is a direct donation to the charity in question and the second is through a third party, who acts as a middleman.
This vendor will be involved in the entire donation process, right from picking up your car from your house to selling it at the auction.
Up until 2005, many fake charities sprung up, claiming to offer car donation services. The law at that point had no restrictions regarding the number of deductions that a donor could claim. Consequently, this led to scammers cheating hundreds of innocent vehicle owners.
How do you protect yourself from scams?
If you wish to donate your car, here are a few things you could do, to ensure that unethical charitable organizations don’t scam you:
1. Check whether the charity and the third party vendor are legitimate organizations
Many organizations claim to be legitimate. Be sure to ask for their certificate of registration, before proceeding with the donation.
2. Request for the Form 501(c)(3) which is issued by the IRS
As per the IRS, no person is eligible for deductions if the charity you have donated to is unregistered under this form.
3. Ask the IRS for a copy of the charity’s Form 990
Every registered charity needs to file a tax return on an informational basis with the IRS. In this situation, the charity utilizes Form 990. Make sure you get a signed copy of this form from the charity.
4. Review the financial reports of the company
The balance sheet and P&L account of the charity will help you know how much the organization is spending on their charitable endeavors. It will also expose any expenses that are unaccounted for.
5. Check the news for any fraudulent history
Check the news for any cases of scam or fraud that the company was involved in.
6. Visit the charity in person
When you visit the charity, you get to see whether there is an actual brick and mortar building to its name or not.
7. Attach the IRS Form 8283 while applying for deductions
Every individual and organization need to report all non-cash transactions that are above $500 to the IRS using the Form 8283. Once you present this form to the IRS, you will be notified immediately if the charity in question is a fake one.
8. Sign the title before donating the car
Most scams occur because scammers convince car owners to donate their cars without transferring the title to the charity. Consequently, this allows the fraudsters to escape, as the responsibility of the scam falls on the person in whose name the car is in; meaning you.
9. Report fraudulent charities and vendors to the authorities
If you come across any charity which is involved in a scam, report them to the officials immediately.
Since the year 2005, due to changes in the law, the number of fake car donation services has dropped. But, it still is recommended that you do your research before you make your donation. Subsequently, this will ensure that your well-meaning gesture will reach the intended people. It will also help you get what is rightfully yours.