Changes in Charitable Contribution Deduction

CHANGES IN CHARITABLE CONTRIBUTIONS DEDUCTION REQUIREMENTS A new piece of tax legislation, the Pension Protection Act of 2006, was recently enacted into law. The new law contains numerous provisions affecting retirement plan participants. For example, the current $5,000 limit on IRA contributions was scheduled to drop back to $2,000 after 2010. The new law makes the higher $5,000 contribution limit permanent and indexes it annually for inflation. The new law also contains many provisions having nothing to do with retirement plans. In fact, it makes some of the most important changes in the deduction for charitable donations that we have seen in years. For example: * Gifts of clothing and household items: Many people periodically clear out their closets and attics, donate unwanted items to charity, and claim a deduction for the value of the items. You can continue to do this in the future but only if the items are in "good" or better condition. This new rule applies to donations of clothing, furniture, appliances, linens and similar household items. * Cash gifts: As a general rule, deductions for charitable donations must be substantiated by canceled checks or receipts from the charity. However, in the past, a log or other written record sufficed when cancelled checks or receipts were not readily available. So, for example, if you dropped a $20 bill in the Sunday collection plate or in a Christmas kettle outside of a department store, you could still claim a deduction as long as you kept a record of the donation. The new law eliminates this option starting in 2007. All charitable donations must be supported by bank records or receipts from the charities. * Donations from IRA funds: The Pension Protection Act creates a new tax break for charity-mind individuals age 70 1/2 or older. Distributions of up to $100,000 from an individual retirement account are tax-free if paid over to a charity. However, this new break is temporary; it applies only to distributions made in 2006 and 2007. There are a number of other new law provisions that may affect your charitable planning. If you want more information, please contact us.