Uncle Sam comes knocking each April for his share of your yearly income. Part of the game of paying taxes is to try and reduce your actual taxable income, so you get to keep more of your money. Unbeknown to many, a car can actually help you save on your taxes. That’s why there are countless Google searches for “donate car tax donation” and “new car tax donation.”

Instead of repeating the same “donate car tax donation” and “new car tax donation,” here is what you need to know.

Donate Car Tax Donation

Did you know that there are tons of charities and non-profit organizations that accept car donations? These groups either need to use the car to run their operations, or they sell the car to raise money for their mission.

As long as you are donating your car to a 501©(3) non-profit organization, you can earn a tax deduction for your car donation. The amount you can deduct depends on how the group uses your donated vehicle. If the non-profit uses the car for its operations, you can deduce the fair market value of the vehicle.

Fair market value is just another way of saying how much similar cars are worth. You can use websites like Kelley Blue Book to help determine your vehicle’s fair market value.

If the organization sells your car, you can deduct the amount for which the vehicle sells. Just make sure you get a written receipt of your generous gift and a report for its selling price.

New Car Tax Donation

Section 179 of the IRS code for vehicles with a gross weight rating of over 6,000 pounds placed in service during 2021 for business are eligible for a tax deduction. This incentive might help you decide between a sedan and a heavier vehicle like an SUV.

If you run a business, even a small LLC, you could potentially purchase a vehicle under your business and save come tax time. Cars that are used for business purposes can also deduct some of the car’s mileage, maintenance, and payments when appropriate. Of course, complex tax moves like this may require the help of an experienced professional. Make sure to contact a CPA or tax preparer to ensure you complete this deduction correctly.

The newly signed Inflation Reduction Act also helps shoppers save on a car. Of course, that car must be an electric vehicle to quality. New EVs can earn up to a $7,500 rebate, while used EVs can earn up to $4,000. This incentive is taken off at the time of purchase, so it may not impact your actual bill come tax time, but it will help keep your wallet full. The new EV rebate does not take effect until 2023.