Answers to Tax Questions: Car Donation

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.

Click below to get your FREE copy of The Modern Mom’s Epic Guide to Easy Budgeting! 28 Page Workbook with 87 ideas to reduce expenses, 14 beautiful worksheets, 7 bonus lessons, and full, easy-to-follow instructions.

Question by Barrie: “My 19-year-old is in college and we claim her as a dependent. She worked this summer and made about $1,200. Do we claim that or does she do her own tax forms?”

She needs to file her own tax return. She should receive a W-2. You can still claim her as a dependent though. Just make sure that she marks on her return that someone else is claiming her. Since she is in college, be sure to take any possible education tax credits on your tax return.

Question by Ann Marie: “How do I make sure that I don’t have to pay state taxes while getting a federal refund?”

Most states in the country require you to pay personal income tax and file a yearly return. The states that don’t have an income tax are: Alabama, Arizona, Florida, Illinois, Indiana, Pennsylvania, South Dakota, Tennessee, Texas, and Washington. If you live in those states, you don’t need to pay state income taxes and there is no return to file. In all the other states, there is an official income tax and you would need to file a return to see if you owe anything.

Question by Annett: “Can’t seem to save money. I’m not working and my husband is on disability. What to do?”

There are only two ways to fix a shortage of money, earn more or spend less. If you have already cut back as much as you can on your budget, then you need to earn more money. In your situation, I would really recommend that you do everything you can to get a job. The economy has been improving lately so there are more job opportunities now than even a year ago. First, set up a professional looking resume and then, apply for jobs that you can do.

If you have children at home that would need childcare if you went to work, check with the social services in your state to see if you can get help paying for childcare. Or perhaps your husband could take care of the children while you go to work.

Question by Tami: “If you are making money from a blog, do you have to register as a business?”

You should register as a business. Most states have rules requiring you to have a business license when you are earning money on the side. But that doesn’t mean you need to set up a corporation or anything like that. You can just operate as a sole proprietor. It’s always better to be on the up and up with your state so that you don’t run into problems later. Be sure to check with your state licensing agency to see what the rules are.

For Federal taxes, you should be reporting the income. Plus you could benefit from deducting your expenses against that income. There are some significant tax benefits to setting your business up as an entity other than a sole proprietor. The entity choices are Corporation, S-Corporation, Partnership, or LLC. The LLC or Limited Liability Company is a unique structure that protects you legally, but also allows you to choose what kind of tax treatment you want to do. That means you can still treat it like a sole proprietorship even though you get the legal protection.

I usually recommend setting up as an LLC with the tax treatment of the S-Corporation. The S-Corporation treatment has some great benefits, but it will require a separate tax return to be filed. The Sole Proprietor treatment doesn’t require a separate tax return, but it does require you to pay a self-employment tax.

Question submitted by Kelly L.: “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 don’t)?”

If you are filling as married filing jointly and are both over the age of 65, you have to file a return when taxable income is $23,200 or if you earn at least $400 of self-employment income. If you have had withholdings and could get a refund, you must file a return to get the refund.

If the prize amount is $600 or more, the company will send you Form 1099 Misc or W-2G. This must be reported on your tax return. Include this amount in calculating your taxable income to see if you need to file. If your prize was valued less than $600, you still have to include the amount on your return, but you won't receive a form.

If you are supposed to file a return and you don't, the IRS can file for you based on what limited info they have. This usually turns out bad for you. So make sure you know whether you should be filing.

Question submitted by Casey G.: “How many years can you wait to file your tax return? Can I file last year and this year together?”

Yes, you can file last year's and this year's returns in the same year.

If you are going to get a refund, you won't have to pay a penalty. But if you owe money, you will get a penalty plus interest on the balance due. It's a terrible idea to file late if you owe money. The penalties can be enormous.

If you wait 3 years to file, you will lose any chance to get a refund. You must file by 3 years from the original due date to get your refund.

I once filed a return for a woman who hadn't filed one of her returns for 10 years. The IRS had filed for her and had billed her for $25,000 in tax. When I prepared her return, she ended up with a refund of $10,000 instead of owing the $25,000. But unfortunately, she couldn't get her refund because it had been more than 3 years since the return was due. She basically threw away $10,000. Don't end up like that, whatever you do.

Question submitted by Emma: “Is it better to do your own taxes via tax software, or hire a person to do them for you?”

It depends on how complicated your tax situation is. If you just need to do a personal tax return on Form 1040, then you could easily prepare your own return on a tax program like Turbo Tax.

Even if you itemize your deductions, you can still do it yourself. This is a good way to save money since accountants often charge enormous fees for something that only takes them a half hour to do. One tax firm that I worked for charged a client $450 for a tax return that only took 30 minutes to prepare. It's a complete rip off to hire an accountant if you can just pay $50 or so to Turbo Tax and do it yourself.

I plan to provide some tips during this next tax season to help you prepare your own return using software such as Turbo Tax. That way you will be able to save money on tax preparation fees.

The more things you can do for yourself, the better your financial situation will be.

Many people are afraid to do their own tax return because they might make a mistake that gets them in trouble or doesn't give them as much money back. That's why I like Turbo Tax. It asks you questions as you go to make sure you have thought of everything that is deductible. It also offers free help from professionals if you have questions along the way.

If your tax situation involves investment income, self-employment income, or more complicated situations then it might be in your best interest to consult your tax accountant. However, Turbo Tax and other tax prep software can still help when there are businesses or investments involved. You would just need to buy the upgraded version of the software. Many people prepare their own personal and business returns. It's not as complicated as it sounds. Believe me. I know people that are not accountants that prepare their own returns each year.

I can prepare just about any kind of return out there, but I still use Turbo Tax for my personal return because it is so easy to use. I even use it for my business returns. This blog is one of my businesses and I set it up as an entity called an LLC (limited liability company). I elected to use the S-Corporation treatment for my LLC and I use Turbo Tax to do the return each year.

For those of you who are interested in learning how to start a home business, stay tuned because I am working on creating a free class that will teach you the exact steps to start a home business. And yes, starting a home business can make you rich. (Some time I will tell you my secret strategy on which state to register an LLC in to get the best possible legal benefits available. And guess what? It's not in North Carolina where I live and not in Washington State, where I came from.)

Question submitted by Christina: “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 down payment 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?”

I love this question because it is a problem many people face. Here's the thing, Christina, you've probably heard of the phrase,"All work and no play make's Jack a dull boy." Well, when you are always on a strict budget and you can't ever splurge a little, it can be tough on the partner who enjoys spending at times.

It's true that working hard and sticking to the plan will get you to your goal, but for most people it's too hard to be that perfect all the time. So, I recommend a compromise.

Set aside some money in your budget for enjoyment. It doesn't have to be much. But make sure your husband gets part of that money just for him. Let him know that he can spend it on whatever he wants and make sure he gets that amount each month. This will make things easier for both of you. You can still stay on track with your plan if you cut back in other areas of spending. Find 87 ideas on ways to cut back your expenses here.

Here's another helpful tip: Don't take him shopping with you if he is an impulse spender. Whenever there is a partnership between a person who is frugal and a person who spends too much, one of you has to be the shopper. The other one has to stay home every time. Here are 13 tricks to stop impulse shopping right now.

Question submitted by Jana: “Can I claim my husband as a dependent if I support him?”

You can never claim your spouse as a dependent, but you can take a personal exemption for your spouse if your filing status is married filing jointly. If you file as married filing separately, you can only take a personal exemption for your spouse if he doesn't have any income.

A personal exemption is just as good as a dependent. They both provide the same benefit. The personal exemption for 2017 is $4,050. That means your taxable income is reduced by that much.

A dependent is a qualifying child or qualifying relative that you support. Some people have even tried to claim their pet as a dependent, but that doesn't work either.

Question submitted by Linda: “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?”

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.

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63 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?

  • Reply
    Dameshia Leonard
    August 24, 2017 at 12:45 am

    I have and will be a stay at home mom with our 2 daughters for this whole year of 2017. My now husband work 2 jobs this full year of 2017. Do we file together even though I haven’t worked this year? He haven’t filed taxes i believe he owes, but has been working for 3 years straight how do we go about doing this the right way? Can I still file taxes alone with my kids for the child deduction? I really need help on this ibdnt know where to start or what to do.

  • Reply
    Holly Thomas
    August 24, 2017 at 12:45 pm

    Are the free online tax sites as good as the paid ones?

  • Reply
    Stephanie Ludwig
    August 24, 2017 at 2:48 pm

    Is there a good app to file your taxes?

  • Reply
    Jo-Ann Brightman
    August 24, 2017 at 8:48 pm

    How much in clothing can one donate to charity?

  • Reply
    Margaret Sarsfield
    August 25, 2017 at 12:57 am

    is it important to be married if you want to buy a house with another person (financially)

  • Reply
    Amanda
    August 25, 2017 at 7:10 am

    What is the best way to save money

  • Reply
    S. Snow
    August 25, 2017 at 11:12 am

    I am on Soc Sec Disability so I have a few questions. Several years back my husband had to take off approx. 2 years to help with my care & with our 3 boys. During that time, we did not file taxes bc he wasn’t working & I have never filed alone bc of the SSDI. Normally, when we file, mine is shown on there but doesn’t affect it per our tax prepayer. Could I have filed or should I due to missing out on the child tax credit? Also, how many years can you go back & file? Who would we to go to & file during the non-tax time season? We’ve only ever filed with Jackson-Hewitt during normal tax season. What are the average charges for this type of service during the off season?Thank you in advance for any help or advice you could offer. Taxes/Filing are something I am clueless about.

  • Reply
    Mary Beth Wylie
    August 25, 2017 at 11:33 am

    I had success many years ago budgeting using the envelope system. I stopped when I began getting my paycheck direct deposit. I would like to start using the envelope system again but feel it would be inconvenient to withdraw all of my money. Any suggestions?

  • Reply
    Crystal Walker
    August 25, 2017 at 3:27 pm

    My Husband has way too much credit card debt and the payments are eating our finances up, How can we take back control of this?

  • Reply
    Tami
    September 2, 2017 at 9:06 pm

    What tax software do you recommend for bloggers?

  • Reply
    Patricia wright
    September 4, 2017 at 11:36 pm

    I won a toy riding car valued at $200 from a sweepstakes. Do I need to put it on my taxes? And will they send me anything (paper) for it? I got the toy riding car a couple months ago

  • Reply
    Jodi W
    September 5, 2017 at 1:05 am

    An old employer many years ago fired me from job. I had a 401k, but they sent me the amount that was in there as vacation pay. Was that the proper way to do this?

  • Reply
    kelly light
    September 5, 2017 at 1:07 am

    What do you think is a reasonable grocery budget for 2 people. I live in Fl and find food higher here.

  • Reply
    Natalie
    September 5, 2017 at 7:23 am

    Is a home improvement fee for my condo tax deductible if the loan is coming through the city?

  • Reply
    Jennylyn Gross
    September 5, 2017 at 9:47 am

    My daughter inherited a 2000 Chevy Cavalier. Does she have to pay taxes on the car?

  • Reply
    jill broder
    September 5, 2017 at 10:58 am

    do you pay taxes on inheritances?

  • Reply
    Karen Eidson
    September 5, 2017 at 1:39 pm

    I owe about $1900 in taxes fro 2012. I have been paying on a monthly installment agreement since then, but the interest added keeps the balance from going down much. Do you think if I offered them a reduced amount in a lump sum that they would accept it? I am disabled since 2o12 and on disability, and just can’t pay the entire amount off.

  • Reply
    shannon fowler
    September 5, 2017 at 5:32 pm

    I am getting married in the fall. What should we anticipate changing with our taxes due to this?

  • Reply
    Kathy Pierce
    September 5, 2017 at 7:47 pm

    What i the bet way to invest money saved for retirement?

  • Reply
    Sharon
    September 6, 2017 at 7:30 am

    Does student loan debt attach to a new spouse? If not, how are taxes filed to reflect prior debt of only one spouse?

  • Leave a Reply