RAMANI'S CURRENT AFFAIRS & GK PDF DATE:-11/01/2018 FOR ALL COMPETITIVE EXAMS.


RAMANI'S CURRENT AFFAIRS & GK PDF DATE:-11/01/2018 FOR ALL COMPETITIVE EXAMS.

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It's easy to donate a car to charity if all you want to do is get rid of it. Simply call a charity that accepts old vehicles and it will tow your heap away. But if you want to maximize your tax benefits, it's more complicated. Here's a walk-through of some of the considerations, with the usual proviso that you should discuss these issues with your tax preparer before you act.

You Must Itemize Your Return
If you want to claim a car donation to reduce your federal income taxes, you must itemize deductions. You could itemize even if the donated auto is your only deduction, but that's usually not the best choice.

Here's the math: Suppose you're in the 28 percent tax bracket and the allowable deduction for the vehicle's donation is $1,000. That will save you $280 in taxes. If you're in the 15 percent tax bracket and you get that same $1,000 deduction, it will reduce your taxes by $150.

If the car donation is your only deduction, it's likely that taking a standard deduction would save you thousands more dollars in taxes. The only way that donating a car nets you any tax benefit is if you have many deductions and if their total, including the car, exceeds the standard deduction. And remember, you can always donate as much as you want to charities, but the IRS limits how much you can claim on your tax return.

The Charity Must Qualify

Only donations to qualified charities can provide a tax deduction for you. A qualified charity is one that the IRS recognizes as a 501(c)(3) organization. Religious organizations are a special case. They do count as qualified organizations, but they aren't required to file for 501(c)(3) status.

To help you determine whether a charity is qualified, the easiest thing to do is to use the IRS exempt organizations site, or call the IRS toll-free number: 877-829-5500.

A Key Concept: Fair Market Value
The IRS defines fair market value as "the price a willing buyer would pay and a willing seller would accept for the vehicle, when neither party is compelled to buy or sell and both parties have reasonable knowledge of the relevant facts." In this scenario, neither the buyer nor the seller can be an auto dealer. Both must be private parties.

What complicates the matter for taxpayers is that under current IRS rules, you can only deduct a vehicle's fair market value under four very specific conditions:

1. When a charity auctions your car for $500 or less, you can claim either the fair market value or $500, whichever is less.

2. When the charity intends to make "significant intervening use of the vehicle." This means the charity will use the car in its work.

3. When the charity intends to make a "material improvement" to the vehicle, not just routine maintenance.

4. When the charity gives or sells the vehicle to a needy individual at a price significantly below fair market value.

Determining Fair Market Value 

Edmunds can help you determine your vehicle's fair market value with its Appraise Your Car calculator. Enter the car's year, make and model, as well as such information as trim level, mileage and condition. By looking at the private-party value, you'll get an accurate idea of what your vehicle is worth.

Note the caution from IRS Publication 4303: "If you use a vehicle pricing guide to determine fair market value, be sure that the sales price listed is for a vehicle that is the same make, model and year, sold in the same condition, and with the same or substantially similar options or accessories as your vehicle."

Getting Fair Market Value Is Rare

It's not realistic to expect that your car will meet one of the stringent fair market value requirements. Only about 5 percent of donated vehicles are suitable for use by charity recipients. About a third of donated cars are junked, and the rest are auctioned off.

So unless your car is in good or excellent condition, it will most likely be sold at auction or to an auto salvage yard. In that case, your deduction is based on the car's selling price, not your estimate of its fair market value. And note that this price is not necessarily something you'll know when you donate the vehicle, or even before the next tax-filing time, since an organization has up to three years to sell your car.

Paperwork Is Important

Getting tax benefits for a donated car requires a lot of documentation, whether the car is junked, sold at auction or given to a charity's client. IRS Publication 4303 has all the details. Be sure to keep all the papers or electronic files. You'll need them at tax time.

If there's a delay in getting paperwork from the charity, your first option, according to IRS Publication 526, is to file Form 4868. That's a request for an automatic six-month extension of time to submit your return. Your second option is to file the return on time without claiming the deduction for the qualified vehicle. When the charity finally sends your notification, you can file an amended return using form 1040X to claim the deduction. You'll have to attach a copy of the notification to your 1040X.

Another Approach To Car 'Donation'

Besides giving your car directly to a charity, there is another way your vehicle can help a charity and also maximize your tax benefits: You can sell the car yourself and donate the proceeds. By doing so, you might be able to generate more cash than if you let the charity sell it.

Parting with your old vehicle could help a nonprofit carry out its mission and also might make room in your garage for a new car. But how you proceed depends on your goal. If you're focused on getting rid of a junker with minimal effort and you'd look at the tax deduction as a nice bonus, then donating your car makes good sense. But if your goal is to maximize your tax deduction, carefully review these steps, consult with your tax adviser and then make an informed decision.

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