These brief tips explain why donating a car to charity may not be the most tax-efficient strategy, detail what to address in an estate plan for a college-age child, and discuss new IRS compliance campaigns that target specific business-related tax issues.
Should you donate your car to charity?
Donating an old car to a qualified charity may seem like a hassle-free way to dispose of an unneeded vehicle, satisfy your philanthropic desires and enjoy a tax dedication (provided you itemize). But in most cases, it’s not the most tax-efficient strategy. Generally, your deduction is limited to the actual price the charity receives when it sells the car.
You can deduct the vehicle’s fair market value (FMV) only if the charity 1) uses the vehicle for a significant charitable purpose, such as delivering meals to home bound seniors, 2) makes material improvements to the vehicle that go beyond cleaning and painting, or 3) disposes of the vehicle for less than FMV for a charitable purpose, such as selling it at a below-market price to a needy person.
Why your college-age child needs an estate plan
Most college packing lists don’t include an estate plan, but a few basic documents can give you peace of minds as your son or daughter heads off to college. Without them, once your child turns 18, you’ll lose the right to access financial or medial information or make decisions on his or her behalf. Recommended documents include:
- A HIPAA authorization and health care power of attorney, giving you access to medical information and the ability to make medial decision if your child is unable to do so, and
- A financial power of attorney, authorizing you to access your child’s financial records and handle financial matters while he or she is away from home.
Generally, a will isn’t necessary unless your child owns a significant amount of property.
IRS launches compliance campaigns
In recent months, the ITS’s Large Business and International Division announced 18 compliance campaigns that target specific business-related tax issues. Examples include:
Section 48C energy credits. Only taxpayers whose advanced energy projects were approved by the Department of Energy and who have been allocated a credit by the IRS may claim the credit.
Micro captive insurance. The IRS focus here is on taxpayers’ attempts to reduce aggregate taxable income using contacts treated as insurance contracts and a related company that the parties treat as a captive insurance company.
Related-party transactions. The target here is transfers of funds from a corporation to related pass-through entities or shareholders.
S corporations. The IRS focus here is on losses claimed in excess of basis.
Jeffrey A. Faltys, CPA
Jeffrey joined Hancock & Dana in 2017 as a staff accountant. With five years of experience in public accounting, Jeffrey has a wide range of experience including tax preparation and planning services for individual, closely held business, and non-profit clients. Jeff also assists in audits of governmental, non-profit and for-profit non-public entities, as well as other attest engagements.
His experience also includes general bookkeeping, preparation of quarterly payroll tax returns and general business consulting projects.