Analyzing the Actual Net Benefit of an Auto Donation

The need to file your taxes with itemized deductions.

When making an auto donation, whether a car, truck or RV, may not actually be in your best financial interest when straight economics are concerned.  Of course, charitable giving is it's own reward for many, but if you actually consult your accountant, you may not enjoy any additional incentive in the form of tax deduction, as is typically offered for most auto donations.  Especially if your auto donation is worth more than $5,000, you should consider your actual benefit to accurately judge whether it's wise to donate your vehicle.

IRS Filing With Itemized Deductions

For starters, when you file your return for that year, you'll need to file with itemized deductions, rather than taking the standard deduction.  This can work against you if you've not rolled much of your money back into living and working expenses.  Typically, itemized benefits are most often used for the self-employed since so much of their income is reinvested back into their livelihoods in the form of expenses.  A young person just entering the workforce as a low wage employee may find it difficult to account for enough expenses when figuring their taxes.

The Cost of Hiring a Tax Accountant for an Auto Donation

Also, you should consider the cost of hiring a tax accountant if you don't want to bother with all the receipts and calculations.  Though many people could save money from itemized deduction, often they are not interested in fussing with their returns.  The price of some tax preparers is low enough that a large percentage of those in the US use them each year, with widely varying results.

Auto donation is also a type of charity giving that is motivated by your desire to see the charity in question, one with whom you presumably have a particular belief in, get as much of that donation as possible.  Of course, the amount you are able to deduct from your taxes also differs.  Both figures are dependent upon whether you want to give your auto donation to an online or third party organization. 

Benefit From Your Auto Donation

By taking the time and effort to find a charity that can benefit from your auto donation, you can increase the percentage of your auto donation that will be given to the charity and your deduction.  The downside is that this requires time and effort on your part.  This is especially true of higher value auto donations.

Third-party donation organizations are able to offer services such as towing and a quick sale, though sometimes this sale is at a lower price than you could have gotten if you'd managed the sale yourself.  The price one pays for this convenience is overhead for the third-party organization.

State Laws for Auto Donations

Some states, such as California, regulate how a third-party donation service operates, stipulating that certain amounts of the proceeds are given to specific purpose.  Other states have similar laws and statues.  Find out if any auto donation service is registered to practice in your state.  Any complaints against an auto donation service should be on file with the state Attorney General's office.

It is always wise to consider selling the car yourself rather than relying upon an auto donation service.  Such services can consume nearly 70% of the sale price of the car in overhead costs.  Even if you sell it quickly yourself, without repairing it for the sale, you can still expect far more of your donation to go to the charity you're chosen.  Often, one will contact the charity themselves with a cash donation after doing some research into the non-profit organization they're interested in supporting.

In short, one should consider their motivations for any auto donation and balance that with their time constraints and personal financial gain in the form of a large charitable deduction on their taxes.  Remember that deductions are taken off your taxable income, not the tax due.  The relative worth of such a donation does depend upon your tax bracket. 

All auto donations are appreciated and raise money for worthy causes, but there are great differences in the amount of relative value to you depending upon whether you conduct the donation yourself or use a third-party auto donation agency.