Selling a used vehicle can be a hassle – consider the time, energy and money spent to advertise, show the vehicle to potential buyers, negotiate a price and do the paperwork, not to mention concerns about safety and the out-of-pocket costs involved in the transfer. We call this the hassle cost.

If you sell your used car yourself, you’ll bear the hassle cost. If you give your used car to charity and they handle almost everything, you’d avoid the hassle cost.

The dollar value of the hassle cost is a matter of personal opinion. The value impacts your Calculator results.

• The higher your hassle cost, the lower the overall benefits of selling and donating proceeds.
• The higher your hassle cost, the better donating your car looks when compared to selling and donating proceeds.
• The lower your hassle cost, the higher the overall benefits of selling and donating proceeds.

Once you decide, you enter the value you’d choose in the Hassle Cost box in Step 4.

The overall benefits of a typical car donation are much less than from donating the same value of cash.

Make a cash donation by sending a $1,000 check to a charity. It’s a pretty efficient way for you to support the charity’s work, in terms of overall benefits.

• Your cost: Your donation costs you $1,000.
• The charity’s benefit: It gains your $1,000. You’ve provided $1,000 to help cover the charity’s program, administration and fundraising costs.
• The overall benefit ($0 break even): The charity’s benefit of $1,000 minus your cost of $1,000.
• If you itemize deductions at 30% (positive $300): If you are in a 30% marginal tax bracket, you get a tax benefit of $300 (your $1,000 times 30%). So the donation produces a positive $300 overall benefit (the charity’s benefit of $1,000, minus your cost of $1,000, plus the $300 value of your tax deduction).

In the typical car donation where you donate your car with a $1,000 private party sale value, you have to consider both the sales haircut and the dealer percentage.

• Your donated car will be sold for the charity by a commercial dealer.
• It will be sold at auction or for scrap, at a price around its trade-in value. This is less than its private sale value. The difference is the sales haircut.
• The commercial dealer will charge for its services by keeping at least a portion of the sales proceeds (often 50% or higher). This is the dealer percentage.
• Your cost: Your donation costs you $1,000 (the private sale value of your car).
• The charity’s benefit: After the sales haircut and dealer percentage, it gains the remaining proceeds. If the sales haircut is 20% and the dealer percentage is 50%, the remaining proceeds are $400 ($1,000 minus $200 sales haircut minus $400 dealer percentage).
• The overall benefit (negative $600): Following along with the example, the charity’s benefit of $400 minus your cost of $1,000.
• If you itemize deductions at 30% (negative $360): If you are in a 30% marginal tax bracket, you get a tax benefit of $240 (the car’s actual sales price of $800 times 30%). So the donation produces a negative $360 overall benefit (the charity’s benefit of $400, minus your cost of $1,000, plus the $240 value of your tax deduction).

If, however, the charity will use your donated car directly in its programs, your $1,000 private sale value car produces the same overall benefits as a cash donation.

• Your car will not be sold, but will be used directly by the charity.
• Your cost: Your donation costs you $1,000 (the private sale value of your car).
• The charity’s benefit: It gains the $1,000 value of your car.
• The overall benefit ($0 break even): The charity’s benefit of $1,000 minus your cost of $1,000.
• If you itemize deductions at 30% (positive $300): If you are in a 30% marginal tax bracket, you get a tax benefit of $300 (the car’s private party sale value times 30%). So the donation produces a positive $300 overall benefit (the charity’s benefit of $1,000, minus your cost of $1,000, plus the $300 value of your tax deduction).

Summarizing the above

In Step 6, the Calculator asks you what portion of the proceeds you would donate to charity, if you sold the car. Please choose a percentage, from 10% up to 100%.

A few thoughts,

• The percent you donate is totally up to you.
• You can use proceeds to donate to more than one charity.
• You’ve incurred the hassle cost when you sold your car. You might want hold on to part of the sales proceeds to reward you effort.
• If you itemize deductions, your charitable contribution deduction will based on the amount of proceeds you donate.

When considering a car donation to charity there are three possible approaches.

• Donate the car to a charity that sells it or has it sold.
• Donate the car to a charity that uses it in its programs.
• Sell the car and donate proceeds.

A few big picture comparisons of the three approaches,

Charity car donation programs continue to handle many millions of dollars of transactions each year. The volume has dropped significantly, however, since Congress tightened the rules in 2005.

The best data we can find comes from the annual IRS reports on Individual Noncash Contributions. The reports cover situations where the taxpayer claimed a noncash charitable deduction greater than $500 (and filed IRS Form 8283). These numbers do not cover car donations where the taxpayer claimed a noncash charitable contribution of $500 or less or car donations where the taxpayer did not itemize deductions.

Read the reports on Individual Noncash Contributions for 2011, 2010, 2009 or 2008.

Donated cars are normally sold by or for the charity

Chances are, your donated car will be sold by or for the charity.

At times, however, charities use donated cars directly in their work (giving them to individuals and families in need, or using them in repair or teaching programs, or using them for day-to-day operations).

It can make a big difference

What the charity does with a donated car can make a big difference in the overall benefits of donating the car.

• If the charity uses the car in its programs, it receives the full value of the vehicle for its work and the donor earns a larger itemized deduction (based on the private sale value).
• If the car is sold, the charity receives less and the donor’s itemized deduction is smaller (based on the actual sales price).

Before donating your car, ask the charity whether they use donated cars in their programs. If they do, find out how they decide which cars will be used that way. If it’s really important to you that the charity use your car in its work, don’t donate unless the charity confirms that that they will do so.

Your marginal income tax rate is the rate you pay on your last dollar of taxable income. It’s based on your taxable income shown in your return, and your filing status. For example, with taxable income of $100,000,

• A single person would have had a Federal marginal rate of 28%.
• A married couple filing jointly would have a marginal rate of 25%.
• A married person filing separately would have a marginal rate of 28%.
• A head of household would have a marginal rate of 25%.
• In each case, most of the taxable income would be taxed at 10% or 15%.

Those who pay state income tax also have a marginal rate. Your overall marginal income tax rate is a combination of both Federal and state rates. Check with your tax advisor.

Read more about marginal income tax rates

A “sales haircut” is the difference between the private sale value of a car and its trade-in value.

When a donated car is sold by or for a charity, normally it’s sold at auction or for scrap. The sales price will be less than the private sale value. The sales haircut is the difference between the private sales value and the sales price. To estimate the sales price for your car, the Calculator uses its trade-in value.

The formula for what the charity receives from the sale of a donated car looks like this:

• private sale value
• minus sales haircut
• minus dealer charges (percentage)
• equals proceeds to the charity.

If the dealer percentage is 60%, that means the charity receives 40% of the sales proceeds from the car.

We have not been able to find dealer percentage data on a nationwide basis.

California reports for 2012

Charities in California received 31% of the funds raised in commercial car donation programs during 2012. That means the dealer percentage was 69%.

The commercial dealers in the three largest campaigns kept more than 86% of the proceeds (less than 14% went to charity). The dealers in the remaining campaigns together turned over 51% to charity.

By law, commercial fundraisers are required to register with the California Attorney General’s Registry of Charitable Trusts. Then, for each solicitation campaign conducted, they are then required to file annual financial disclosure reports that set forth total revenue and expenses incurred.

Source: The 2012 report from the California Attorney General covering charity campaigns by commercial fundraisers.

31% to charity is six-year low

31% is the low percentage going to charities, going back to 2007. The six-year average was a 53.5% dealer percentage. This information is from the 2012 California report and similar reports for prior years.

If a car’s private sale value is less than $1,000, it’s unlikely the charity will use it in is work.

• It will be sold by or for the charity, at auction or for scrap (at trade-in value or less).
• Once you factor in the dealer percentage, the charity will net little (if any) net proceeds from the car.
• The charity’s motivation for accepting the car might simply be to strengthen its link with the donor – in effect, the charity will be doing the donor a favor.

$1,000 is the minimum private sale value that will work in the Car Donation Calculator.

The letter grades are based on the total benefits percentage

The higher the letter grade, the greater the overall benefits compared to the value of the donate car.

Each of the three approaches produces a total benefits result (positive or negative) in dollars. Divide a total benefits result by the private sale value of the car, you get the total benefit percentage. The percentages become letter grades using this approach:

 A “C” grade is acceptable

It means that the benefits to the charity are close to the cost to the donor. A typical cash donation to a charity would get a “C” grade — the overall benefit is pretty much a break even (it costs the donor the donated cash, the charity receives the donated cash). If the cash donor itemizes deductions, the overall benefits can obtain a “B” or an “A” depending on the donor’s marginal tax rate. See FAQs/ How are car donations different from cash donations?

If you’re seeking a charitable contribution deduction greater than $500, you’ll need a proper written acknowledgement from the charity, and must file IRS Form 8283 with your tax return.

If you’re seeking a deduction greater than $5,000 and the car will be used in the charity’s programs, you’ll also need an appraisal from a qualified appraiser.

While things are simpler for a deduction of $500 or less, you’ll still need to obtain a proper written acknowledgement from the charity if you want to deduct $250 or more.

These IRS publications can help,

• IRS Publication 4303, A Donor’s Guide to Vehicle Donations, spells out the rules and the steps to qualify for an itemized deduction.
• IRS Publication 561, Determining the Value of Donated Property.
• IRS Publication 4302, A Charity’s Guide to Vehicle Donations, spells out the acknowledgement, disclosure and other rules related to the charity side of a vehicle donation.

Check with the vehicle registration office in your state.

Generally, state officials recommend that the donor take responsibility for transfer of title to ensure termination of liability for the vehicle. In most states, this involves filing a form with the state motor vehicle department which states that the vehicle has been donated.

Before donating the vehicle, you should remove the license plates, unless state law requires otherwise. This may help you avoid any liability problems after the vehicle is transferred.

Dig before you donate

A few tips,

• Not all groups that seek donations are legitimate. Check the identity and tax status of any organization before you donate.
• CharityCheck101.org will tell you whether or not an organization is a charity that can receive donations that are deductible as contributions.
• Focus on charities that work on issues and problems that you care about.
• Compare charities. Not all charities are equal. Some do solid work with the funds entrusted to them; others are poorly managed and do ineffective work.

You’re at Charity DNA — where you can find identity and tax status information on more than 1.5 million IRS-recognized charities and other nonprofits. We do not provide Star ratings.

The best know site that provides Star ratings is CharityNavigator.org — it covers more than 7,000 charities.

CharityCheck101.org is a place to screen and find basic data on 1.5 million+ nonprofits and charities.

1. Once you find an organization at CharityCheck101.org, look at its report and see if there is a free SeriousGivers.org (SGO) Report available for it.SGO Reports provide more in-depth info on thousands of charities. Here’s a link to a sample SGO Report: http://seriousgivers.org/report/?id=237069110
2. Also, the organization’s report at CharityCheck101.org will provide its EIN (employer identification number). Use the EIN to do fast research about the organization at GuideStar, NCCS, CharityNavigator and elsewhere.

Having the organization’s EIN (employer identification number) is the key to quick and exact research about a nonprofit or charity.

We suggest two ways to find an organization’s EIN,

• Get the EIN from the organization or its website or written fundraising materials. We encourage organizations to prominently show their EINs. Read more.
• Go to the CharityCheck101.org directory search page. Follow the instructions there, searching based on the organization’s name. The “Goldilocks” name search (just right) will be neither too precise nor too vague.

Every IRS-recognized nonprofit and charity (more than 1.5 million) can be found at CharityCheck101.org.

The information about organizations found at CharityCheck101.org comes directly from the public IRS datafiles.

The IRS updates the public datafiles after an organization files a new Form 990 or other new information with the IRS. There is a time lag between the organization filing and the updating of the public IRS datafiles.

If you need to change information, contact the IRS Exempt Organizations professionals directly. A link to the EO contact page.

We see five possible answers. The first three are the most likely.

1. You might not have searched in a way that the database recognizes. The fastest and most accurate searches are based on using the organization’s 9-digit EIN (federal employer identification number) on the EIN Magic page. If you are doing a name search, use fewer words in the search box. Try searching again.
2. The organization is newly recognized by the IRS as a nonprofit or charity (or was recently reinstated). There is often a delay between the time the IRS issues a determination letter (or reinstatement) for an organization and the time the organization is listed in the IRS public database. Read the IRS explanation here.
3. The organization is not an IRS-recognized nonprofit or charity (or has lost that status). In recent years the IRS has revoked the status of thousands of organizations based on their failure to file annual reports with the IRS. You can double check the organization’s status at the IRS Exempt Organization Select Check page. That page will tell you whether the organization is eligible to receive tax-deductible contributions, or has had its tax-exemption revoked, or has recently filed a Form 990-N. Again, the fastest and most accurate searches are based on using the organization’s 9-digit EIN.
4. The IRS has made an error in showing the organization’s status in the IRS data files. At CharityCheck101.org we obtain our list directly from the IRS’s official Exempt Organizations Business Master File Extract. If there’s an error in the IRS data files, that error will also show in our directory. Raise this directly with the IRS: Click here for the IRS Exempt Organization contact page.
5. There’s a glitch in the CharityCheck101.org database system. If possibilities 1 through 4 are not the case, please let us know about the issue by using our Feedback Please page. We try hard, but we’re not perfect.

The tax deduction benefits of donating to Private Foundations are generally more limited than for other charities.

• Donors generally can deduct up to 50% of their adjusted gross incomes for contributions to Section 501(c)(3) organizations.
• Many Private Foundations are Section 501(c)(3) organizations. Donors, however, generally can deduct only up to 20% of their adjusted gross income for contributions to Private Foundations.

The CharityCheck Report for an organization shows whether or not it is a Private Foundation. See the Tax Status section of the Report.

Every organization listed by the Internal Revenue Service (IRS) as tax-exempt is included in the CharityCheck directory.

We obtain the IRS list by going to its online Exempt Organizations Business Master File Extract.

Churches and government units generally do not file with the IRS (not being required to do so). Unless they have filed, they are not included in the IRS list. Government units include states, counties, cities and towns and their agencies.

Numbers of nonprofits on the IRS list — recent history

Every charity has its own unique federal employer identification number (EIN), which it obtains by applying to the IRS. An EIN is typically a nine-digit number, shown like 12-3456789. A few charities have EINs with eight or fewer digits (normally shown with a leading zero like 01-2345678).

While charity names can be similar, no two charities have the same EIN. EIN checking is more precise than DNA testing.

We encourage charities to prominently display their EINs, to help donors find charities and avoid “charity” scams.

All charities are nonprofits, not all nonprofits are charities.

What’s a “nonprofit”?

To be a nonprofit, an organization must fit within one of 34 different Internal Revenue Code (IRC) categories — based on its function or mission. Most organizations have to apply to the IRS for a written determination that they are entitled to nonprofit status. Churches and government agencies don’t have to apply.

Being a nonprofit means that the organization can operate without paying income taxes to Uncle Sam on their main activities Because of this, nonprofits are often referred to as being “tax-exempt.”

Being a nonprofit does not mean that you can claim a charitable contribution deduction for money you give to the organization. For 22 of the 34 nonprofit categories, there is no charitable contribution deduction. IRS Publication 557 lays this out in great detail on pages 72 and 73.

The five largest nonprofit categories account for more than 91% of the total registered with the IRS.

• Section 501(c)(3) — 71.3% of all nonprofits — religious, educational, charitable, scientific, literary, public safety, amateur sports, prevention of cruelty to children or animals. Charitable contribution deduction is available.
• Section 501(c)(4) — 7.1% — Civic leagues, social welfare organizations. NO charitable contribution deduction.
• Section 501(c)(8) — 4.9% — Fraternal benefit societies. Charitable contribution deduction available if for certain 501(c)(3) purposes.
• Section 501(c)(6) — 4.6% — Business leagues, chambers of commerce. NO charitable contribution deduction.
• Section 501(c)(5) — 3.6% — Labor, agricultural, horticultural organizations. NO charitable contribution deduction.
• Section 501(c)(7) — 3.6% — Social and recreational clubs. NO charitable contribution deduction.
• Section 501(c)(19) — 2.2% — Post or organization of armed forces veterans. NO charitable contribution deduction.

The IRC also makes an important distinction within the section 501(c)(3) category — public charities vs. foundations. The distinction is based on where the organization’s financial support comes from (with private foundation support typically coming from a small group of large donors).

What’s a “charity”?

For us (and most others) a charity is

• a nonprofit that qualifies under section 501(c)(3) and
• is also a public charity (vs. a private foundation).

Generally you can claim a charitable contribution deduction for a donation to a 501(c)(3) public charity. You can also claim the deduction for donations to some nonprofits which are not 501(c)(3) organizations, at times depending on the intended use of the donation. See IRS Publication 557 at pages 72 and 73.

While two charities may have very similar names, no two charities will have the same EIN (federal employer identification number).

• Because each charity has its own EIN, EINs are a great way to avoid confusion among charities.
• EINs are the fastest way to research specific charities.
• EINs are the quickest way to check whether an organization is actually a charity — and accordingly to avoid “charity” scams.

We encourage charities to prominently display their EINs, to help donors find charities and avoid “charity” scams.