Over 250,000 cars are donated to charity each year, helping to fund nonprofit organizations or provide low-income individuals with transportation. Unfortunately, there are a lot of untrustworthy charities that will use the donation to fund extravagant salaries. Additionally, disreputable intermediary organizations, which claim to fund charities with your vehicle donation, may keep up to 90 percent of the proceeds from the sale of the vehicle, giving only a fraction of the funds to a charity.
Protecting yourself from scams and fraud is essential when you’re considering donating your vehicle to charity.
How Car Donations Typically Work
There are three common ways in which car donations work:
- The charity accepts the donation directly, and arranges to pick up the vehicle or you arrange to deliver it.
- The charity contracts with an intermediary organization, which takes care of the acquisition, paperwork, and sale of the vehicle.
- An intermediary organization offers its own donation services and lets you choose from a number of charities to receive a portion of the proceeds of the vehicle’s sale.
Charities that accept direct donations will often handle the details themselves. However, it takes time and money to process the vehicle, and in the end, they net between 70 ad 80 percent of the proceeds.
If a charity doesn’t have the manpower or the interest in processing vehicle donations, they will often contract with an intermediary organization to handle all of the details. Reputable charities who use a third party to handle the donation will typically choose an equally reputable middleman that will pass on 70 percent or more of the proceeds of the car to the charity.
For-profit companies that seek car donations to benefit your choice of charities may keep up to 90 percent of the proceeds of the sale of the car, which means your donation is primarily funding the middleman rather than the charity.
Do Your Due Diligence
The most important task when you’re considering donating your car to charity is doing your homework to find a charity that is not only reputable, but also uses the majority of their funding to support the programs that align with their mission statement.
The only way to ensure your donation is used wisely and to prevent getting scammed is to conduct thorough research on the charity and/or the intermediary organization and ask a lot of questions.
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How Charities Use Car Donations
Charities will typically do one of three things with your vehicle donation:
- They may keep the car and use it in their operations.
- They may make improvements to the car or leave it as is, sell it, and use the proceeds to fund their organization.
- They may sell the car at a discounted price or give it to an individual in need.
If you’re planning to take a tax deduction for the donation, you’ll maximize the amount by choosing a charity that will either keep the car and use it, or give or sell it to a person in need.
Finding a Charity to Donate Your Car To
The first step in donating your car is to make a list of charities you would like to support. If you don’t know where to begin in choosing a charity, make a list of causes that you feel strongly about, such as protecting animals, eradicating health conditions, or providing children living in poverty with food or shelter. Do an Internet search for charities that work toward the cause, and make a list of potential donees. Once you have your list in hand, contact the charities directly to find out whether they accept car donations. Some questions you should ask include:
- Do you handle the donation directly, or do you contract with an intermediary organization? If a middleman is involved, what percentage of the proceeds do you actually get?
- What will you do with the car?
- If the car is sold, what percentage of the proceeds will go toward programs rather than administrative and fundraising costs?
- Will the money be used locally?
Other important things to keep in mind include:
- IRS status. You can only take a tax deduction if the charity is registered with the IRS as a 501(c)(3) nonprofit corporation. The exception to this rule is donating the vehicle to a church, temple, mosque, or synagogue, all of which are qualified to accept tax-deductible contributions but none of which are required to register with the IRS.
- The financial health of the charity and how efficiently it uses its funds.
Finding out this information is easy with a little research.
Checking the IRS Status
To find out whether a charity is qualified by the IRS to accept deductible donations, you can contact the IRS in one of three ways.
- Contact the IRS Customer Account Services Division for Tax Exempt and Government Entities at 877-829-5500.
- Go to the IRS website and use their Exempt Organizations Select Check Tool, and enter the name of the charity.
- Visit the GuideStar website and enter the charity’s name. GuideStar is an organization that compiles information on every charity that is registered with the IRS as a 502(c)(3) nonprofit. If the charity is listed, they are qualified to receive tax-exempt donations.
Checking the Efficiency of the Charity
GuideStar and Charity Navigator are both nonprofit organizations dedicated to helping donors avoid scams and ensuring their donation is used efficiently to fund programming.
- GuideStar compiles the information found on the charity’s IRS Form 990, which is public information. A simple search will allow you to see the charity’s income, read their mission statement and expert reviews, and view their Form 990, which breaks down the allocation of funds. You may need to create a free account to see some of this information.
- Charity Navigator rates charities based on a number of criteria, including the percentage of funding that goes to programming. A charity that spends less than 60 percent of funding on programs is considered unsatisfactory, while one that uses more than 60 percent on programs is considered satisfactory. Charities that use 75 percent or more for programs is considered the most efficient.
The best way to avoid a scam is to avoid starting the donation process with an intermediary organization. Instead, research and choose a charity with a high ranking which pays its officers a reasonable salary, and which uses its funding efficiently to the tune of 75 percent or more of its funding going toward programming. If this charity uses a middleman for processing the donation, they have most likely chosen one that’s highly reputable and passes on 70 to 80 percent of the proceeds to the charity. However, it’s still in your best interests to ask the charity about the percentage they get.
Be sure to fill out all of the donation forms thoroughly, and keep copies of all donation documents in a safe place to protect yourself against fraud, liability, and an audit by the IRS.