Watch Your Taxes
Watch Your Taxes
Lately, I have heard a few complaints, or to put it in better prospective, I should say a few outrages. It is in regard to donations, car donations in particular. Many people donate their car to charity organizations for the goodness of their heart and thatâ018s how it should be; others donate them for the financial benefit they can get. We can't blame them for the reason that most charity organizations give people the idea of the big tax benefit the donation will generate at tax time. Like other papers, the Wave has a few such inviting advertisements. Yes there are many benefits associated with a donation. One is the good feeling of knowing that some one out there, some one less fortunate, needs it, will enjoy it. Another one is the financial or I should say, the material benefit. For the soul, the first one is unquestionable. A donation could bring a good financial break at tax time. A break that equals to the donor's tax bracket. If the tax bracket is 36%, a donation valued at $3000 would give the donor $1080.00 reduction in tax, but there is a string attached. Many times the donation, as a tax break, is useless. For a donation to generate a tax break it has to be made to an IRS's qualified organization. A donation to a non-qualified organization or to an individual or member of family is not valid. Those donations may bring other favors but not a tax break. There are many times when a donation, even though made to a qualified organization, doesn't bring the desired tax break.
First and most common of all it is when the donor has a "free ride" meaning there is no tax liability due to Uncle Sam. The financial benefit of a donation only offsets the tax due, if any; if there is no tax due, there is nothing to reduce, the financial benefit is lost. There are other times when the donation doesn't generate a break. One of them is when a tax "short form" is filed. In this case the donation is of no use at all, it is lost and then "what do you mean I don't get any thing? I could have sold it for 400 / 500 dollars" becomes very familiar to the tax preparer There are many reasons to file a short form instead of a long one. One is when the short form already reduces the tax liability to zero so there is no extra benefit, no need to file a long one. Another one is when the total "itemized deductions" of the donation and other allowed deductions is less than the "standard deductions" allowed by the IRS so it would not be beneficial to file a long form. The benefit of a donation, if any, could only be useful in the year the donation is made.
If your interest in a donation is the financial benefit, it would be a good idea to consult your tax preparer before you donate. This is not, by any means, to discourage a donation. If a donation does not bring the desired financial benefit, the donor should not think of it as a financial loss that lasts only a short time, but as a good spiritual gain and that will last for ever.