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Using Vehicle Donation to Remain in a Lower Tax Bracket

Not everyone has to take just that which the IRS gives them. Sometimes one can time and value their charitable vehicle donation in such a manner that you actually make out far better after putting your entire taxable income into a lower tax bracket.

Doing so on purpose is generally best attempted upon the advice of a CPA, but if you think you're close to the edge, you can do some simple calculations to find out how close you are to that lower tax bracket, especially if you've been keeping track to make quarterly payments, as many small businesses do. Sometimes it only takes a few thousand dollars to tip the balance in favor of a lower rate, and even a car that isn't running that well can net at least that much.

In fact, in such a case you can decide whether you need to donate a car that's in particularly good shape or an older one. To potentially take advantage of a higher rate, it's best that you donate a car that's currently running and tagged.

Many actually recommend selling a car first and then donating the proceeds directly to a charity, since you theoretically are able to take the same amount as a deductible that you'd be able to get when actually selling it. However, it's easier to donate a car for use, especially when the charitable NPO in question is kind enough to take care of all the paperwork for you.

Of course, if you are to sell it yourself, you have more control over the ultimate fate of your vehicle donation that if you simply sent it off with a charity or their third-party agents. In such a case, and most of the time in the case of non-functional or low value cars, the vehicle will simply be sold on the wholesale market to keep costs down make the sale as quickly as possible.

When vehicles are sold at wholesale, it is likely that you'll only get a small fraction of the vehicle's true “fair market value.” Instead of having enough for a tax break, you may find yourself, with too small a tax break to be significant as well as without car.