How to Maximize Savings at Tax Time

Donating to charity is a great way to help the world while reducing your tax liability. Find out how strategic donations to a car donation foundation can help.

Get the Most From Tax-Deductible Donations

Few Americans want to pay more than they have to in federal taxes. Not all of them realize that strategic donations to charities like a car donation foundation can offer a legal means of reducing the tax burden.

The Importance of Itemizing

To comply with IRS requirements, tax filers must claim their donations as itemized deductions. This decision precludes using the standard deduction and requires filers to report donations on Schedule A of IRS Form 1040.

Only some people claim itemized deductions. It only makes sense to do so if all of the itemized deductions, including but not limited to charitable donations, result in more significant tax savings than a worker will get by claiming the standard deduction.

This is more likely to happen for those giving to a car donation foundation. Vehicles are worth more than most donated items.

Requirements for Charitable Deductions

Tax filers who know they’ll reach the threshold for reporting itemized deductions should note that they will also need to comply with specific federal rules. Only some donations qualify as deductible contributions.

The rules for charitable giving become stricter and more detailed as the value of a contribution increases. They also vary depending on whether a giver donates money or property. In the case of a car donation foundation, most people fall into the latter category.

The most important requirements are substantiation, donee acknowledgment, valuation, and appraisal. In other words, donors must get a receipt from the charity showing the value of their donation.

AGI Ceilings and Car Donation Foundation Gifts

Sometimes, the IRS caps charitable deductions based on a tax filer’s adjusted gross income (AGI). The limits vary depending on the contribution.
For public charities, the deduction limits are up to 50% of a taxpayer’s AGI in cash or 60% in credit as of 2023.

Gifts to private charities and non-cash gifts of capital gain property can’t exceed 30% of the giver’s AGI. However, taxpayers can carry forward deductible contributions for up to five years.

Taxpayers who give a vehicle to a car donation foundation may be able to maximize their savings at tax time for several years.

How to Maximize Your Deductions

Taxpayers who plan on making large donations may want to take steps to ensure that they can profit from itemizing their deductions that year. The best way to do that is by “bunching” contributions.

Bunching contributions refers to delaying donations until the next tax year if it will help the giver profit from itemizing their deductions. Accelerating donations can also help.

Remember that charitable donations are just one type of itemized deduction. Tax filers who know they will have additional itemized deductions this year but not next year should contribute now. Those who will have greater itemized deductions the next year should wait.

People who make donations to a car donation foundation or similar charity should also note that depending on the model year and condition of the vehicle, it may be considered appreciated property. If this is the case, the giver may enjoy more significant tax savings from donating it than selling it.