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Giving Gets More Complicated

As we begin to think about filing tax returns for 2006, you may need a refresher on some changes to charitable tax laws enacted in August of this year.  The tax code revisions apply primarily to how and what charitable donations you can deduct.  Here are some changes that may apply to you, but check with your tax advisor concerning detailed rules.

Donation of household goods


Household goods donated to charity must be in good condition or better to qualify for a deduction. If your donation is not in good condition, it must be worth $500 or more, and that value must be verified by a written appraisal. Previously, only items valued at $5000 or more required an appraisal. 

You should also be careful in setting the value of your charitable deductions.  The penalties for inflating values have increased.  If you claim a value that is 50% or more above what the IRS believes is appropriate, you can incur a penalty equal to 20% of your underpaid tax.  If you inflate the value by double or more, your penalty can rise to 40%. 

Cash Donations


Starting January 1, 2007, you will need a bank record or receipt from a charity to claim a cash gift.  (Previously cash donations lower than $250 did not require a formal record).

Donor Advised Funds


Donor advised funds are intermediary charities (such as community foundations) that allow you to claim a deduction now, but donate the money to direct charities over time.  In the past, some donor advised funds have allowed donors to use some money earmarked for charitable contributions to pay family members’ salaries or expenses related to charity work.  The new tax law prohibits using donor advised funds to pay individuals. 

IRA Contributions


During 2006 and 2007, individuals over age 70-1/2 may exclude from taxation up to $100,000 per year of IRA distributions that are contributed to charity. (No deduction is allowed, but the distribution is not taxed.) The benefit is avoiding the deduction percentage limitations, which can be beneficial for individuals who make substantial contributions relative to their adjusted gross incomes. 
 

 

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