Collecting Basics

[Richardnew]

I have a new article out that covers the basics of collecting. Once you own over 3 cars you have a collection. You also have a tax situation. We won't even get into the maintenance issues.

You may need to think about non-profit 501(c)3 foundation. That seems to be very popular right now.



Richard Newton

[lee88]

Thanks Richard, I saw your article in the Road Scholars news letter. I plan to chat w/ my CPA and trust & estate attorney sometime about the best way to structure things now that my collection has grown to half a dozen vintage cars. But do you know of any online resources that are out there that specifically discuss 501c3 issues for car collectors?

Lee

[Richardnew]

I'm not aware of any good online 501c3 resources. I know that a lot of collections are going that way. Some folks are setting up the 50c3 and then donating their cars to the 501c3 as a charitable contribution. In some cases it may be financially advantageous to take a tax deduction rather than selling your car. Then again that's why we have tax lawyers.

An LLC is another option but I'm not real knowledgeable about the advantages and disadvantages. I'm thinking that I could put my cars into an LLC and have my son as an officer in the LLC. That's interesting to me.

Right now I'm starting to work on an article that deals with transitioning a collection to a new owner. Maybe put the cars into a trust and then transfer the trust to other family members.

This is all pretty new for car folks. The art people are way ahead of on this. The bad part is that most of us don't think of this stuff until it's too late.

Richard Newton

[37yrold911]

I'm not aware of how a private collection could fit the 501c3 model?

[Richardnew]

Most of the big collections are 501c3. I'm not sure it works as well for small collectors but it's worth examining.

"The most common type of tax-exempt nonprofit organization falls under category 501(c)(3), whereby a nonprofit organization is exempt from federal income tax if its activities have the following purposes: charitable, religious, educational, scientific, literary, testing for public safety, fostering amateur sports competition, or preventing cruelty to children or animals."

All of the ones I'm familiar with are non-profit educational foundations. This is a little difficult for the average collector because you have to demonstrate how your collection is educational. It usually consists of making tours available. You might be able to qualify if you took some cars to schools a few times a year. You really need a specialist though if you go down that road.

The big advantage here is in reducing your taxable income.

"An approved 501(c)(3) exemption allows donors to the organization to reduce their own taxable incomes by deducting the amounts of their donations given, and thus to reduce their personal income taxes. And it allows the 501c3 organization to avoid federal income taxes on the difference between revenues (donations, grants, service fees) received vs. expenses (wages, supplies, state & local taxes paid, etc.) in its main operations. In a for-profit business, that difference would represent taxable income and be taxed at Federal corporate tax rates of 15 to 39 percent.[15] 501c3 status may also provide exemption from state and local corporate income taxes that range from 0 to 12 percent."

Richard Newton

[37yrold911]

the purpose has to be to provide a public benefit - education is a public benefit BUT just driving over to a school once a year won't cut it nor will something that looks like the main benefit is to you or looks like tax avoidance

a museum would qualify but has huge added costs beyond a mere collection

it must also not conflict with commercial operations (for profit businesses)

normally an organization has to first qualify under their state law, then apply for 501c3 status with the feds - for obvious things like an environmental group it is easy to qualify

for a collector, you'd need a lawyer that specializes in non-profits, not just a CPA

if qualified, there would be several filings needed a year with various state and federal agencies

Jerry Seinfeld could do this but not the typical guy with 6 old cars

[Richardnew]

It's very complicated. I know the record keeping alone is a tremendous task.

I'm wondering what the benefits of an LLC might be? Or, a trust?

You're absolutely correct that you need a lawyer who is very familiar with non-profits. The average lawyer would be totally lost in this.

Richard Newton

[37yrold911]

an LLC can limit liability for a business, but nearly as much as many people think

I agree it might be complicated for a car collection (or impossible/illegal). I'm associated with a 501c3 and the record keeping is not a biggie (compared with a for profit business).

[72targa]

here's one...

http://www.blackhawkmuseum.org/

[Richardnew]

They seem to have an entire department devoted to eduction. Very nice. The Revs Institute in Florida is trying to gear up for school groups but it's not easy.

I'm not sure how you could approach this requirement with a 10 car collection but I'm sure there's a way. Then again you have to have cars that are valuable enough to make the effort worthwhile.

We really have two items here. First, how can a collector minimize their current tax obligation. Secondly, how can the collection be passed on to the next generation without a massive tax bill. That's assuming that the kids even want the cars. I know of several major collections where the kids have already told dad - "I don't want all those old cars."

Richard Newton