GET A TAX DEDUCTION
When you have a scrap car, you have two options that you can use to get rid of it. One of the methods is selling it to junkyards and the second method involves giving it as to charitable organizations. But which is the best method of junking your car?
Many people have a perception that selling their old car to the scrap buyers gives them some quick bucks. However, you can choose to have tax benefits by giving your car to charitable organizations. However, you need to plan so that you can maximize the charitable contribution deduction.
Internal Revenue Service highlights that there are two methods that you can use to calculate your charitable deductions. However, the two methods depend on how the charity uses your donations. However, you can use deductions from the sales results from the car or the fair market value of your old car.
You need to how much the charity sold your junk car because that is what you will need to deduct from your taxable income. For example, if the charity organization sells your old car for $3,000 that is the amount of money you need to claim a deduction even if the fair market value of your car is $5,000. However, you can claim deductions on fair market value if the charity decides to keep the car.
However, you don’t only need to deduct the amount of money the charity sells as the amount that you will deduct from your taxable amount. Internal Revenue Service (IRS) recommends that you can use the guides from reputable used-car price and calculate your deduction using the fair market value.
For example, you can go to your local library and get a book that has details about used cars. In this book, you will get the details about the model of your car and its market value. You can as well search from the internet the fair market value of your used car. This is the amount of money that you will deduct from your taxable income.
After determining the amount the charity has sold or the fair market value of your car, you need to report the deduction to the concerned authorities so that the amount can be legal and official. Otherwise deducting the amount without reporting to the authorities could attract huge penalties.
Besides, you must make sure that you have the necessary documentation. Many people only tend to report the deduction to the authorities, but they do not submit the necessary documents. You must ask the charitable organization to give you a document that you will present to the authorities. Some of the important details that need to be included in the document include; your name, date of your donation: a vehicle identification number and any other important information.
From this analysis, it is clear that donating your junk car so that you can get a car donation deduction is a better option. However, you have to weigh between selling your car to the scrap buyers or donating it for a tax deduction.