Charity: New rewards, rules
BY MARK SCHWANHAUSSER
KNIGHT RIDDER NEWSPAPERS
February 26, 2006
Americans opened their wallets to help people rebuild their lives in the aftermath of the devastating hurricanes of 2005: Katrina, Wilma and Rita.
The year also was remarkable for how swiftly lawmakers approved two, late-year tax bills containing dozens of generous tax breaks. Taxpayers will be rewarded for giving king-size cash donations, sheltering storm victims or just driving their cars on behalf of a charity.
“The unique thing about both of the disaster acts is you do not have to be a victim to somehow be affected,” said Mark Steber, vice president of tax resources for Jackson Hewitt Tax Service.
As a result, qualifying taxpayers can:
Deduct up to 100 percent of their adjusted gross income for cash contributions they gave to certain charities from Aug. 28 through Dec. 31, even if the charities had nothing to do with hurricane relief. The limit is normally 50 percent.
Claim an exemption of $500 for each Katrina victim they sheltered at least 60 consecutive days, capped at $2,000 per household. Unlike personal exemptions, these will not be erased if you owe alternative minimum tax.
Double the write-off for miles they logged in their cars to provide Katrina relief on behalf of a charity. Though the rate for mileage associated with general charitable activities remained locked at 14 cents, the rate for providing services solely related to Katrina jumped to 29 cents from Aug. 25 through Aug. 31, then to 34 cents for the final four months of the year.
Taxpayers normally can take a charitable deduction only in the year they make a donation. In the wake of the devastating tsunami in Southeast Asia, however, Congress gave donors the choice of writing off cash donations in either 2004 or 2005, even if they didn’t cut the check until January 2005.
Check your tax returns if you donated cash last January. Weigh whether you’d come out ahead by taking the deduction on both federal and state returns for 2004 or 2005, or whether you’d save by taking it for different years on the two returns.
Whatever you do, though, don’t try to double-dip by claiming the deduction two years running.
As generous as these tax breaks are, many unsuspecting American donors will feel shortchanged in 2005. That’s because the Internal Revenue Service now requires more proof to ensure donors don’t inflate the value of noncash contributions like clothing and cars.