Car donations to charity are big business in the United States, with over 250,000 vehicles donated every year. Charities either keep the donated cars and use them in their operations, give them or sell them at a low price to people in need, or sell them at face value and use the cash to fund their mission.
Donating your car to charity is a good way to make a difference, and the tax deduction you get doesn’t hurt, either. Charities and intermediary organizations that act as middlemen have made the process of donating your car as simple as possible, and in fact, the most difficult part of the donation process is choosing the right charity to benefit from your vehicle.
You can only deduct your donation on your taxes if the charity is registered as a 501(c)(3) nonprofit organization with the IRS. Temples, churches, mosques, and synagogues are not required to register with the IRS, but they are all qualified to accept tax-exempt contributions.
All Charities Are Not Equal
Charitable work is an integral and essential part of our society in the United States. A recent study by Bank of America and the Institute on Philanthropy of Indiana University found that only 56 percent of Americans trust the government to help society, while 91 percent trust nonprofit organizations to do so. According to the Charities Aid Foundation, a UK-based nonprofit, Americans contribute more to charities than any other country in the world, and indeed, 95 percent of Americans donate to charity every year, accounting for 72 percent of all charitable funding in 2013.
Individuals, corporations, and foundations give $250 billion a year to charity, and with that kind of money being given away for free, it’s not surprising that there are a large number of charities that are outright fraudulent, preying on the kindness of individuals who want to help. And unfortunately, there are also a large number of charities that have good intentions but manage their finances so poorly that only a fraction of their income goes toward furthering their mission.
The most important consideration when donating to charity, whether you’re contributing time, money, goods, or services, is how effective the charity is in working toward their mission and how efficiently they use their funds. With over 1.8 million charities registered as nonprofits with the IRS, there are plenty of charities to choose from, and with a little research, it’s easy to find a reputable, effective, and efficient organization to donate your car to.
Narrowing Down Your Choices
What causes are near and dear to your heart? Feeding children? The ethical treatment of animals? Protecting the environment? Are you more interested in supporting local, national, or international organizations?
Choose a cause, and do an internet search for charities whose mission aligns with it. Once you have a list of promising charities, it’s time to do some simple research to find out how they score.
There are a number of nonprofit watchdog groups and other organizations whose mission is to educate the public about the effectiveness of nonprofit organizations and identify those that use funds inappropriately, fraudulently, or ineffectively. This information comes from IRS Form 990, which all nonprofit organizations are required to file with the IRS every year and which contains detailed information about the charity, including their finances.
The most important factor in choosing a charity is the percentage of funds that go directly to programming in contrast to how much is used for fundraising activities and administrative functions.
- Charities that use less than 60 percent of their funding for programming are considered unsatisfactory.
- Those that spend more than 60 percent on programs are satisfactory.
- Those that spend more than 75 percent on programs are the most efficient.
GuideStar doesn’t rate charities, but rather compiles information from Form 990 and disseminates it to the public in an easy-to-understand format. Enter the charity’s name in the search field and click on the charity in the results. With one quick glance, you can:
- Read the charity’s mission statement.
- View a description of its programs.
- See their total annual revenue and expenses.
- Read expert and general reviews of the charity.
By creating a free account, you can view the charity’s Form 990. All of the information you need will be in the first three parts of the form.
- Part 1 breaks down revenue and expenses, telling you where the charity gets their funding and how much of it goes toward programs, administration, and fundraising.
- Part 2 breaks down their spending into categories and major functions.
- Part 3 is a narrative by the organization that serves to justify their tax exempt status by explaining in detail how they accomplished their mission over the course of the year.
Charity Navigator uses a four-star scale to rate charities that get $500,000 or more of their funding from public support and have an annual income of more than $100,000. The criteria they use to determine the rating are the charity’s financial health and their accountability and transparency.
Enter the charity’s name in the search box and click on the charity in the results to see their overall rating, their financial health rating, and their accountability and transparency rating. Scroll down to see the percentage of funds the charity spends on programming, fundraising, and administrative expenses as well as a wealth of other information about the organization that can help guide your decision.
Contact the Charity
Once you’ve chosen your charity or narrowed down your choices considerably, contact the charity to find out whether they accept vehicle donations and if so, how they process them. Some charities accept direct donations, while others use an intermediary organization.
If the charity uses an intermediary organization, ask what percentage of the proceeds of the vehicle’s sale goes to the charity. If it’s less than 70 percent, consider another charity.
You may also want to ask how the charity will use the car. If they will sell it, find out what percentage of the proceeds will go toward programming.
Keep a Paper Trail
Maintain copies of all documents associated with the donation of your vehicle, including the written acknowledgement the charity will send you within 30 days, and keep these in a safe place to protect yourself against fraud or liability and to ensure you’re covered in case of an IRS audit.