Answers to Tax Questions: Car Donation

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Have you ever considered donating an item to charity so you could get a tax deduction? Maybe clothes, toys, or even a car? One of our readers asked about it and now I’m going to share the detailed answer with everyone.

Question From Linda in Washington: I have 3 ‘junk’ cars I want to donate for the $500 tax deduction. Would I be able to do all 3 in the same year, or should I space them out? 

Answer: 

Yes, you can donate them all in one year. But first, you need to make sure that the donation is going to a real charity. They should be able to provide you with a receipt and proof that they are a legitimate charity.

Second, you need to check your prior tax return to see if you itemized deductions or took the standard deduction. If you don’t itemize, you can’t deduct the car donation. Wait until you can itemize before you donate. 

Next, before you decide when to make the donation, you might want to estimate your tax refund for the year based on what you already know. The best site for doing that is e-file.com. It’s completely free to use their tax refund estimator

My philosophy is that you only want to donate this year if it will help you get a bigger refund or reduce what you owe. Otherwise, save it for the next tax year. This will maximize your financial gain.

If you need more deductions to increase your expected refund or to reduce your tax liability then you definitely want to donate the cars this tax year (or clothes, toys, household items, etc.). If you don’t need more deductions, then save it until you do. As long as you donate the car by the last calendar day of the year, you can still count it on your tax return. The IRS has a special publication just for car donations if you want to read up on it.

But hold on…you don’t get $500 more in a refund just because you value the car donation at $500! The amount of additional refund you get is LESS than the donation value. Why? It’s because you are deducting the $500 from your income and your income is being taxed at a certain percentage.

For example, if you are in the 15% tax bracket and you deduct the $500 donation, this will represent an additional tax refund of 15%* $500 = $75 more refund. That’s pretty insignificant, right? Maybe you would be better off selling the cars for what you could get for parts. Can you get more than $75 by selling the parts of the car on Craigslist? Can you sell the car as is to someone who can fix it up? This is my recommendation. Sell the car for more than what you can get back on your tax return.

Do You Have a Tax or Budgeting Question? 

I worked as an accountant for years. Feel free to ask any question you like. Just reply to this email with your question and I will answer it in an email like this one. Plus, this coming tax season, I am planning to give tips to help you save a bundle of money by preparing your own tax return.

If you need help setting up a budget, click here.

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43 Comments

  • Reply
    kelly light
    July 17, 2017 at 3:09 am

    I am disabled and on social security, my husband is disabled but, fighting for social security benefits, he won a trip, do we have to file taxes (I normally dont)

    • Reply
      Dori
      August 12, 2017 at 9:59 pm

      yes

  • Reply
    Lisa
    July 17, 2017 at 4:07 am

    My husband and I always have someone file our taxes for us. We feel this person knows the up to date tax laws. Do you think this is saving us or should we buy the online file documentation to file ourselves? If so what do you recommend and how do we begin?

  • Reply
    Rena
    July 17, 2017 at 1:11 pm

    I haven’t drawn my Federal Employees Retirement for 10 years, when I do, what is the lump sum IRS tax form I file for exemption?

  • Reply
    Casey Garvey
    July 17, 2017 at 1:44 pm

    How many years can you wait to file taxes for? Example, can I file last year and this year together?

  • Reply
    Judy Schechter
    July 17, 2017 at 3:26 pm

    If someone lives in a nursing home and they get Social Security Disability and they receive less than $13,000 per year, are they expected to file taxes?

  • Reply
    angela meek
    July 17, 2017 at 4:22 pm

    I donate to local charities all the time. Usually clothing and household goods etc. Goodwill offers a receipt but most others don’t. Is there a way to claim those donations without an estimate/receipt??

  • Reply
    Barrie
    July 17, 2017 at 9:47 pm

    My 19 year old is in college and we claim her as a dependent. She worked this summer and made about $1200. Do we claim that or does she do her own tax forms?

  • Reply
    D
    July 18, 2017 at 1:59 pm

    Fortunately I was able to work with NelNet to discharge the remainder of my education loans (~$350k + interest) and received a 1099-C to file. I am insolvent. How do I show insolvency? Is there a particular form or do I just submit some sort of narrative along with the 1099-C? Thanks!

  • Reply
    Teri Moore
    July 18, 2017 at 2:12 pm

    Being on a fixed income is hard what are some sure money saving tips?

  • Reply
    Emma Prive
    July 18, 2017 at 5:54 pm

    Is it better to do your own taxes via tax software, or hire a person to do them for you?

  • Reply
    Barbara Lowe
    July 18, 2017 at 9:10 pm

    How much income does one need to make before having to file taxes?

  • Reply
    Darcy Carmichael
    July 19, 2017 at 9:25 am

    We have 12 children but since we don’t pay federal taxes after the first 6, we haven’t claimed the last 5 (#6 & 7 are twins). Is there a benefit to claiming them?

  • Reply
    Mindi Eden
    July 19, 2017 at 9:32 am

    This is more a comment than a question. When you win a sweepstakes or giveaway and the sweeps company files a 1099 with the IRS- if they make a mistake & put the money amount in the wrong box the IRS will interpret that as self-employed income & will kick back your return saying you owe self-employment taxes. You must be able to prove the income was from a sweepstakes/giveaway.

  • Reply
    Susan,TN
    July 19, 2017 at 10:45 am

    We have 2 boys, 21 & 17, and would love for them to be in a better financial place, regarding retirement, then we are when they get older. At their ages now, what would be the best place for them to put their money?

  • Reply
    Kayla Sheehan
    July 19, 2017 at 2:12 pm

    What’s the best way to save money for your kids futures. I don’t want something that can’t be touched unless it’s for school.

  • Reply
    Jana S
    July 19, 2017 at 10:37 pm

    Can I claim my husband as a dependent if I support him

  • Reply
    Salman
    July 20, 2017 at 5:57 am

    My question is that why buyer pay Sales Tax on any product? Sales Tax means that the person who is selling is liable to pay Sales Tax but instead they collect from buyer. Why?

  • Reply
    Tami
    July 20, 2017 at 9:53 am

    If you’re earning money from a blog, do you have to register as a business?

  • Reply
    annette fisher
    July 20, 2017 at 10:49 am

    CAN NOT SEEM TO SAVE MONEY. I AM NOT WORKING AND HUSBAND ON DISABILITY. WHAT TO DO

  • Reply
    Anne Marie Carter
    July 20, 2017 at 12:26 pm

    How do I make sure that I don’t have to pay state taxes while getting a federal refund?

  • Reply
    Ashmyr Tallyn
    July 21, 2017 at 11:41 am

    Is there anything i should know regarding taxes that are hidden from regular information provided?

  • Reply
    HEATHER CHRISLIP
    July 21, 2017 at 11:50 pm

    I get emails that aren’t spam bc my clean virus thing deletes spam automatically and it says its possible that all the years I filed taxes that I didn’t get back my full amount and that I can check with the irs and get back money owed to me??? Is this true??

  • Reply
    Kathy Pierce
    July 23, 2017 at 1:59 am

    As of today what is mot profitable investment ?

  • Reply
    Ina Gribbins
    July 25, 2017 at 8:55 pm

    I am an older person and I think I can make as much money as I want and still keep my social security. My question is how does social security income affect your taxes if you work and still get to keep your social security? I guess the real question is does the social security make your taxes higher or does it not have anything to do with earned income I am confused about that….

  • Reply
    neil califano
    July 25, 2017 at 9:22 pm

    Is the money i earn selling on ebay taxable?

  • Reply
    Lisa Ogle
    July 30, 2017 at 11:25 am

    when filing taxes do we have to reportall winnings big and small?

  • Reply
    Rosanne
    July 31, 2017 at 7:34 am

    During retirement @ age 64 and 62 is it better to use cash savings or 401K earnings?

  • Reply
    Sandra Watts
    August 1, 2017 at 4:24 pm

    I mystery shop but make little money because I don’t put a lot of time in it so am I required to file or not?

  • Reply
    SherryChristensen
    August 2, 2017 at 12:03 pm

    Retirement is on the horizon for me. Always had employer provided health insurance. I have no idea how to shop for health insurance. Can you provide guidance on how to compare insurance offers?

  • Reply
    Mary
    August 2, 2017 at 4:21 pm

    I am currently on disability from ss. I receive benefits for my 2 minor children. How, if at all, will divorcing and having joint custody impact these benefits?

  • Reply
    Christina Grivas
    August 2, 2017 at 4:38 pm

    Hi there! My husband and I are recently married and in the middle of a strict 2-year plan to A. have a baby, B. get out of debt, and C. save cash for a downpayment for a house. My husband is totally on board with all of these goals, and understands the financial plan to achieve them. But, I find myself constantly saying “no, we can’t afford that right now”, or “remember our plan?” and he gets really frustrated. My question is, how do I keep reminding him that we are not getting any older, and we have a very realistic and possible goal, we just have to work hard and stick to the schedule?? Thank you!

  • Reply
    Nicole Watson
    August 2, 2017 at 11:18 pm

    What is the child tax credit

  • Reply
    karen cairns
    August 3, 2017 at 8:28 am

    I want to know if when I turn 65 which is in a year or so if I should start taking social security or wait until 70? which is better for me

  • Reply
    Jamie Johnson
    August 3, 2017 at 10:35 am

    It seems like Uncle Sam takes A LOT of my paycheck. I did not claim any dependents because I do not have any, and I am married, but certainly NOT head of household. How much should the gov be taking out of my check if I mk $8.25/hr? I live in Louisiana if that helps.

  • Reply
    Kathy bergman
    August 4, 2017 at 2:23 pm

    I’m on a fixed, low income. I’m on disability. What are some of the best ways I can save money. I’m getting married next year and my fiancé and I need to both save and he doesn’t make much either. Any suggestions would be greatly appreciated on this blog or email me. Thank you.

  • Reply
    Laurie Damrose
    August 5, 2017 at 5:03 pm

    what do I need to know when starting a small business?

  • Reply
    Marti Tabora
    August 7, 2017 at 5:35 am

    Is it ever possible to claim donations without having a receipt?

  • Reply
    deion jackson
    August 8, 2017 at 1:25 pm

    how long does it take to work for your 401k

  • Reply
    Karen Propes
    August 11, 2017 at 11:13 am

    We never received our tax refund check from a few years back, we have done everything we know to do. When contacting them they say they can’t help us, that maybe someone else cashed it. Why can’t they help us?

  • Reply
    Janice Pittenger
    August 13, 2017 at 6:17 am

    I have donated more than $500 in merchandise to various charities. Plus money to others. Can I only deduct $500?

  • Reply
    Rosalee Jacklin
    August 17, 2017 at 2:52 am

    If there is an adult living in my home on disability can I claim them on my taxes?

  • Reply
    al
    August 19, 2017 at 7:14 pm

    We have a qualified high deductible($5k/p) medical plan from my former employer that stops at age 65 AND an extremely high deductible ($25k/p) plan thru my professional association that doesn’t stop at 65.. I asked the 2nd insurer if it was “disqualifying coverage” for an HSA, but they never responded–and their customer service number denies we have a policy despite their billing agent (Marsh) accepting premium. What can I do?

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