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Charitable Contributions and the “Pension Protection Act of 2006”
By Jean DeKraker, CPA
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Charitable contributions have been affected by new tax law and may
signal a new area that will be heavily audited by the IRS. Here’s
what you need to know:
 Under
the new law, you will not be allowed take a deduction for any
contribution of cash, check, or other monetary gifts to a charity or
organization unless you:
- keep a bank
record supporting the donation, (for example a cancelled check),
or
- obtain a written
communication from the recipient charity that meets specified
requirements.
Therefore, no cash
donations without a receipt can be deducted. This is in effect for
donations after August 17, 2006.
What’s changed?
Prior to the new law, you were required to provide substantiation
only for cash contributions of $250 or more, and this remains in
effect. The change affects, however, cash donations under the $250
threshold. Simply put, the new rule includes such cash donations as
those made on church collection plates or coins dropped in Salvation
Army buckets. Without charity-provided substantiation, such
donations will not be allowed.
Another important change affects donated clothing and other items.
Effective for donations after August 17, 2006, no deductions will be
allowed for contributions of clothing and household items that are
not in “good used condition or better.” Congress also gave the IRS
authority to issue rules stating that deductions would be denied for
items of “minimal monetary value, such as used socks…” For purposes
of this new rule, “household items” includes furniture, electronics,
appliances and linens. A favorable exception allows write-offs for
single items that are not in “good” condition or better if they are
appraised at more than $500.
Tax-free
distributions from IRAs for charitable purposes: If you are 70.5
years and older, consider making a tax-free distribution from your
IRA to a qualified charity.
Your charitable distribution for the year
cannot be more than $100,000.
If you would like to read the
Pension Protection Act and it's resulting changes in detail, click on the below links. Each link brings up an Adobe
Acrobat PDF file, which can also be downloaded to your computer.
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