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Charitable
Giving Tax Limits Temporarily Lifted Tax
benefits in relief bill are short-lived but significant
The
president has signed into law new charitable giving
provisions as part of a Hurricane Katrina tax package
designed to encourage giving both to relief organizations
and charities overall.
The most important provision for
many charities is the elimination of the 50 percent
adjusted gross income limitation on charitable deductions
by individuals.
Under current law, individuals may
deduct charitable donations in a year up to 50 percent
of their adjusted annual gross income. Deductions
for charitable donations are further limited by the
phase-out of itemized deductions. Under the proposal,
cash donations to charities are exempt from the 50-percent
income limitation and the phase-out of itemized deductions
if the donations are made before January 2006.
This provision creates a strong
incentive to give larger gifts, especially from retirement
funds such as IRAs, 401(k) and other retirement plans.
For example, under current law, if a taxpayer with
$50,000 in income and $100,000 in a retirement fund
wanted to contribute the money in his retirement fund
to charity, the most he could deduct is $75,000 (that
is, 50 percent of $150,000, his adjusted gross income
for the year).
Under the provision in the tax relief
package, that donor could take a deduction for the
full amount of the gift, or $100,000. In fact, to
take an extreme example, if he wanted to contribute
all of his income to charity, he would take a deduction
for the full amount, or $150,000. However, penalties
for early withdrawal are still applicable.
All gifts to charity are eligible
for this incentive, not just contributions to disaster
relief organizations.
“This is a potentially
very powerful incentive for giving, but it has a very
short shelf-life,” said AFP President and CEO
Paulette V. Maehara, CFRE, CAE, referring to the provision’s
expiration date of Jan. 1, 2006. “Given that
most donors will be unaware of this provision, charities
should be reviewing their donor lists and contacting
those individuals who could take advantage of it.”
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