Donations...NEW Incentives...Restrictions
If You Give, Get a Receipt
If you're searching for ways to trim your taxes, consider giving money to your favorite charities. But ...watch out for a new tax law wrinkle, and think about alternative ways to make your gifts.
Any cash gifts you make this year can't be deducted on your federal income-tax return unless you have a bank record, such as;
a canceled check
or a receipt from the charity that includes the amount and date of your gift.
"You can't just keep your own written record of your small cash contributions any longer," says James A. Sedel, senior tax analyst at Thomson Tax & Accounting.
"You need to have proof of the contribution, .no matter how small it is."
Before making last minute gifts, think about the best way to do it. Millions of people write checks.
Here's another idea: Consider donating stock or Mutual Fund shares that have risen very sharpley over the years.
By donating those shares, you typically can deduct the full market value of your gift. Also, you won't owe any capital gains taxes on the gain.
Don't give away shares that have gone down in value over the years. Instead, sell them and donate the proceeds. Those capital losses can be useful in cutting your tax bill.
What if you want to make a donation but don't have spare stock or cash? Consider charging your gift to plastic. You're allowed to deduct your gift even if you charge it this month...(*)December 2007... and don't pay until 2008.
To be eligible to deduct charitable contributions, taxpayers have to itemize their deductions on Schedule A. Most people don't itemize. Instead, nearly two thirds of all returns each year take what's known as the standard deduction.
For 2005, about 41.4 million returns claimed charitable contributions, up from 40.6 million for 2004, the Internal Revenue Service says.
Highlights and * by page author
Congress recently approved important tax changes as part of long awaited legislation to overhaul pension laws.
Among the major changes are additional incentives for taxpayers to donate to charity.
For example,
The bill enables many older people to give as much as $100,000 from their Individual Retirement Accounts, tax free, directly to qualified charities each year.
These and other changes are part of a bill expected to be signed into law soon by President Bush.
But to take full advantage of them, you may need to call an experienced tax adviser. Even by taxgeek standards, some of these changes are complex.
Charitable organizations have been waiting for years for lawmakers to approve the Provision allowing direct, tax free charitable distributions from IRAs to charities.
Under the new legislation, taxpayers who are 70% or older typically get an ex clusion from their gross income for otherwise taxable distributions of up to $100,000 from an IRA, which are paid directly to a qualified charity.
Any amount donated to charity this way is taken into account for purposes of your minimum distribution requirement for the year.
Just remember that no charitable deduction will be allowed for any part of these withdrawals that would otherwise have been taxable, says Mark Luscombe, principal tax analyst at CCH, a Wolters Kluwer unit that provides tax and other business information and software.
This change is effective for distributions this year and next year.
For more details, see a publication (No.JCX-38-06) by Congress's Joint Committee on Taxation, house.gov/jct"Joint Committee on Taxation
But the bill also includes new restrictions on deducting donations of clothing and household items..
Under the new bill, donors generally can't deduct used clothing or a household item unless it's in "good" condition or better. (Congress didn't supply a definition of "good.").
A deduction may be allowed, however, for a charitable gift of clothing or a house hold item that isn't in good condition or better if the amount claimed is more than $500, and if the taxpayer includes a qualified appraisal with the tax return.
The Joint Committee on Taxation publication says. Household items include furniture, furnishings, electronics, appliances, linens and similar things. Food, paintings, antiques and other objects of art, jewelry and gems are excluded from this provision.
This provision will be effective for contributions starting the day after President Bush signs the bill into law,(*)August 17, 2006) which is likely to be this week, so you may want to donate some older clothing or other items now.
Another provision says taxpayers can't deduct any contributions of cash or other monetary gifts unless they can show a bank record or written communication from the charity with the details.
This is supposed to apply even to money you I hand over to churches, synagogues and other religious organizations during services. Thus, if you want to deduct a gift, consider writing a check or get a receipt. This change will be effective next year.
The legislation also makes permanent the higher dollar limit for contributions to IRAs and 401(k) plans. For this year, the IRA limit is $4,000 for people under age 50. Those 50 or older by the end of the year can make an additional "catch-up" contribution of $1,000.
Tom Herman's "Tax Report" ...appears Wednesdays in The Wall Street Journal. Send questions on finances, investments or taxes to:
askdowjones.sunday03@wsj.com and include your name, address and a daytime telephone number. Questions may be edited; we regret that we cannot answer every letter.
Highlights and * added by page author.