Planning on Tax Deductions for Charity?

Charitable Tax Deduction Rules Changed in August, 2006

National Association of Tax Professionals (NATP) Appleton, WI – Charitable contributions are a favorite way that many taxpayers defray their tax liability while benefiting a worthy cause. However, it’s important to know that rules about the deductibility of contributions have changed and took effect as of August 17, 2006, when President Bush signed the Pension Protection Act of 2006. The changes apply to tax years beginning after Aug. 17, 2006. For most calendar-year taxpayers, that means they are effective in 2007. The bulk of the changes can be summed up in a single word:receipts.

Changes regarding cash/monetary contributions

Donors must have a bank record, a receipt, or written communication from the donee showing the organization name, date of the contribution, and amount for all contributions of money, regardless of the amount.

Changes regarding non-cash contributions

Individuals, partnerships, or S corporations may only donate clothing or household items in good used condition, or better.

Exception is for single items of more than $500 value that include a qualified appraisal, even if the item is not in good used condition.

The IRS may deny deductions for items of minimal monetary value such as used socks and undergarments.

The following changes include donations made between January 1, 2006, and December 31, 2007:

  • Changes regarding wholesome food donations

  • Foods donated must be wholesome food -- food intended for human consumption that meets all quality and labeling standards imposed by federal, state, and local laws and regulations, even though the food may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions.

  • Donee must obtain an itemized receipt containing the same information as those needed for cash/monetary contributions mentioned previously.

  • Corporations or taxpayers owning a trade or business receive an above-basis deduction for wholesome foods, but donations cannot exceed ten percent of the taxpayer’s aggregate net income for that tax year from all trades or businesses from which those contributions were made.

  • Changes regarding corporate contributions of qualified books

Corporations receive an above-basis deduction for charitable contributions of books used for elementary or secondary public school education meeting specific requirements.

The donee must satisfy the specified certification requirements regarding the books and its use of those books.

Changes regarding cash donations for taxpayers age 70 ½ or older

Taxpayers over age 70 ½ can avoid paying income taxes on cash donations up to $100,000 when paying them directly from tax-deferred IRAs to qualified charitable organizations. While this is not a tax deduction, taxpayers do avoid paying taxes on the donated amount. It also conserves this money from estate taxes for estates over $2 million. All donations must be documented carefully including a receipt from the receiving donee (see cash/monetary donations above).

The changes affect everyone who contributes to charitable organizations at any level. "Church-goers who used to put cash in the collection plate each week must now either write a check or take advantage of the church's envelope system," remarks Jersey City, NJ, NATP tax professional, Robert D. Flach, author of the blog, THE WANDERING TAX PRO.

Sam Grubbs, an enrolled agent and NATP member in Columbus, GA, adds, “Unfortunately, this may negatively impact collections such as the MDA drive over Labor Day weekend by the firefighters. Will you ask the firefighter for a receipt when you drop a dollar in the boot?”

Essentially, the message is “get a receipt” for every donation you wish to claim as a charitable contribution, starting immediately.

For questions, see your tax professional. Tax professionals are experts who keep current on tax law changes. They can save you time and offer insight on how to use the tax breaks available to you. 


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