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Giving to Charity?
Charitable Tax Deduction Rules Changed in August 2006
Americans are often generous, but if you plan to use charitable giving donations as a tax deduction, it’s important to know that rules about the deductibility of contributions have changed and took effect as of August 17, 2006, with the passage of the Pension Protection Act of 2006. The changes therefore apply to donations after August 17, 2006. 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 noncash (clothing, furniture, etc.) 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 after January 1, 2006:
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/giver 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 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. For example, it makes sense now to put a check, not cash, in the collection plate where you worship (or take advantage of a recorded envelope system) or even in the Salvation Army bucket, if you consistently drop a lot of change!
Essentially, the message is "get a receipt" for every donation you wish to claim as a charitable contribution, starting immediately. Another good idea is to take photos of your donations. Every bit of substantiation helps.
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