Charitable donations are often helpful come tax time in defraying your tax bill, but some offer more benefits than others. How the charity uses your donation also comes into play. Consider vehicle donations. If you donate a vehicle, the value of the deduction varies depending on what the charity ultimately does with it.
For example, you can deduct the vehicle’s fair market value (FMV) if the charity:
- Sells it for much less than FMV to advance a charitable purpose, such as selling to a low-income person who needs transportation
- Uses it for a bona-fide charitable purpose such as delivering meals to the elderly
- Makes “material improvements” to the vehicle.
But in most other cases, if the charity sells the vehicle, your deduction is equal only to the amount of the sale. And your tax benefit also depends on you getting proper substantiation from the charity that shows what the charity used it for, whether they sold it, your name and tax ID number, and the vehicle ID number.
While you’re mulling over that vehicle donation, now is also a good time to think about purging your old tax records.
You’ll need to hold on to 2016 tax records for now, but there’s a good chance you can start getting rid of some old records you’ve been storing in bins in the attic. As a general rule, you should keep tax records for as long as the Internal Revenue Service has the ability to audit your return or levy additional taxes. That’s generally three years after filing your return.
So that means you can probably discard most records related to tax returns for 2013 and earlier years. That extends to 2012 and earlier if you filed for an extension for 2013. In some cases, the statute of limitations lasts past three years. If you understate your adjusted gross income by more than 25%, for example, the limitations period jumps to six years.
And it probably goes without saying, but there is no statute of limitations if you don’t file a tax return or file a fraudulent one.
While it may be freeing to purge those moldering records, some others you’ll need to hang onto for a bit longer. These include tax returns – keep those pretty much forever, so that you can prove to the IRS that you actually filed.
And while you’re saving those, keep all of your W-2s on file, too, at least until you start drawing from Social Security. That way, if there’s any question about your work record or how much you earned in a certain year, you’ll have proof of what was deducted from your paycheck.
You should also hang onto records related to real estate or investments. As a rule of thumb, keep these as long as you own the asset, plus three years after you sell it and report the sale on your tax return (or six years if you’re concerned about the six-year statute of limitations).
These are just some examples of the pros and cons of vehicle donations, and what tax records you can safely discard. If you have any questions about vehicle donations or purging your tax records, please contact us.