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The New Rules of Charitable Giving

Added on 7/26/07

Charitable Giving has a few new rules.

On August 17, 2006 the Pension Protection Act (PPA) was signed into law. In addition to tightening rules and increasing premiums paid to the Pension Benefit Guaranty Corporation and making the Designated Roth Retirement Plans, Sec 529 Plans, Pension plan start up credit for small employers, Retirement Savers Credit and catch up contributions for taxpayers 50 & over all a permanent part of our tax code by removing the sunset date, it addressed a number of charitable contribution issues. For tax years 2006 & 2007 only individuals over age 70 ˝ can make tax free distributions from their IRA’s directly to a charity. The distribution may be used to satisfy any required minimum distributions. The distribution will not be considered as part of the annual charitable limitations. Nonbasis assets will be distributed first. The distribution must be a direct transfer from the IRA trustee to a charity. If you are affected by the required minimum distribution you may wish to look into this new provision.

For donations made after 08/17/06 PPA prohibits deductions of clothing & household goods unless the items are in good or better used condition. The act specifically mentions that the IRS has the authority to deny a deduction for items with minimal value, such as used socks or underwear. In 2003 taxpayers claimed over $9 billion in charitable deductions for clothing & household goods. Congress has decided the rules for charitable deductions needed to be tightened. The deduction of clothing and household goods that are not used by the charity for their exempt purpose is limited to the lesser of the donor basis or fair market value. Normally, the fair market value is the smaller amount. The donor is required to maintain written records of the donation regardless of the donated property’s value. If the deduction for the donated property is $250 or more, the taxpayer must have a written acknowledgment by the donee.

The PPA requires documented written records of all contributions of money and property regardless of the amount. Documentation may include bank records (canceled checks) receipts, or written communications from donors. The documentation must include all of the following:

Date of the contribution; Name of the Donee; and the Amount of the contribution. I believe this eliminates the donation log or journal of cash contributions made after August 17, 2006. After that date you need a receipt or canceled check to verify the donation. If your in the habit of just putting cash into the offering plate you will not be able to take a tax deduction for that contribution. Be sure to use your church offering envelopes so a receipt can be issued.