Thinking of giving away your old vehicle to charity to lower your tax burden? It may not be as simple as it seems.
A Charitable Act
Giving away old clunkers in the name of ‘charity’ has become a new favorite way for Americans to get rid of their unwanted cars for a nice tax deduction. This way they can avoid the hassle of junking their car or selling it, while making sure that the money is going to a good cause. Sounds like a win-win, doesn’t it? Unfortunately, the reality is quite different.
Tampa-based Vetmade Industries has been on a mission to help disabled veterans find employment, and it accepts car donations to help its cause. However, only a small amount of the money actually goes towards helping the war heroes.
According to the organization, 93 per cent of the donations go towards its charitable cause of helping the veterans. But data from California Attorney General shows contradictory results. According to the research, Vetmade collected almost $2 million worth in donated cars in 2015 from well-meaning Americans, but only $91,348 was used for the charity. What happened to the rest of the 95.5 per cent of the money?
According to the organization’s online pitch, it spent $1.9 million in 2015 to pay a company called Just Donated Inc. to promote its cause and persuade people to donate their vehicles. But vehicle donation is hardly a good way to raise money for philanthropy.
The Cost of Donating Cars
Industry experts say that gifting cars to charity and selling them off to raise money is time-intensive and complication process. It is an expensive business with a ton of overhead costs including advertising, towing, repairing and storing vehicles, extensive paperwork to transfer ownership and finding potential buyers to make the sale of cars that aren’t worth much to begin with.
None of this hard work is actually performed by the charities. Instead, they hire a for-profit middleman to do the job, which can cost a lot of money that comes out of the donor’s pocket. John Campbell, the executive director of Vetmade, says that he’s happy with the work Just Donated is doing for them. There are numerous costs associated with acquiring and selling a vehicle even if the charity organization decides to run the donations themselves, and some of them aren’t left with any money at all to spend on the cause.
Taking Advantage of Non-Profits
California-based Fund Raising Partners is another for-profit company that processes car donations for charitable organizations. In 2015, it sold donated cars for Durable Medical Equipment Aid Society but the charity only received 1.7 per cent of what the vehicles were actually worth. At the end, the nonprofit was left with a measly $27,235 to spend on its cause, according to the report by the attorney general.
Durable Medical Equipment Aid Society’s executive director responded to the report by saying that the numbers were a reflection for the organization’s start-up costs, but he expects the returns to be more positive in the next few years.
Nonprofit Faith’s Hope Foundation has also hired Fund Raising Partners as the middleman to oversee car donations worth $593,889 but the charity’s returns are even lower than Durable Medical Equipment Aid Society. According to the report, the Foundation only gets 0.5 per cent of the total worth, which is just around $3,213.
A Word of Caution to Donors
Still, there are companies that return a lot more to the charities. Advanced Remarketing Services’ product manager, Zachary Lasky, says that their main goal is to help out charities as much as possible. The company has established partnerships with various non-profits and returns up to 80 per cent of the donation value to the charity. To cut down on expensive fees, the company sells directly to buyers instead of relying on auctions which eliminates the cost of towing and storing the vehicle.
Lasky says that he’s disappointed to see companies taking advantage of charities and donors should do their research before choosing an organization to gift their vehicles to.