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.

Read the rest of this story here and support newsday.com

A good deed car donation turns into a deduction disaster when the vehicle’s owner is told it’s only worth $12 50. So she asked Help Me Hank to take on the taxing problem.

You’ve got three choices when its time to dump your wheels: sell the car, trade it, or give it away.

When Suzanne Okerfelt’s daughters left for college, she didn’t need their 90’s era clunker, like this one, anymore. So Suzanne decided to give it away to charity.

Suzanne Okerfelt
“Here was our opportunity to make a small difference to someone.”

The car was 11 with a lot of miles, but in good condition.

Suzanne Okerfelt
“We had the engine replaced, a new stereo, it had a remote start, new tires.”

Being a teacher, Suzanne knows all about homework, so she did hers on the right place to donate the car and how much it was worth.

Suzanne Okerfelt
“We’d been given an estimate of about $500 to $700.”

The wheels of Suzanne’s donation were in motion and it was win win. The charity gets a gift. The Okerfelts get a deduction.

Suzanne Okerfelt
“I would be foolish to say that we weren’t going to include it on some level in our taxes.”

Soon a tow truck came. Soon after a thank you note from the charity arrived for the Okerfelts donation of $12.50.

Suzanne Okerfelt
“I showed it to my husband. He said no that’s got to be a mistake.”

Suzanne was devastated that both the charity and her family came out as losers.

Suzanne Okerfelt
“And that’s when I said I’ve got to make someone aware of it.”

What we are aware of is that starting last year, there are new rules about tax breaks for car donations.

We called the IRS tax gurus to find out what that meant for Suzanne.

Turns out that Suzanne’s car was sold to a junkyard for $50. The donation place then subtracted its fees. The remainder was just $12.50. And the new rules say that’s the tax deduction.

View the full car donation story and support WHDH-TV Boston here!

The arrival of those annual financial statements known as W-2s and 1099s means that it is time to deal with some of unfinished business from last year-the preparation of the 2005 tax return. While there have not been as many radical changes to the Internal Revenue Code as there have in some years, there are always new items and key numbers for taxpayers to be aware of. The personal exemption now reduces taxable income by $3,200, which is an increase of $100 from 2004, while the standard deduction for singles is now an even $5,000 ($6,000 for those over 65 years of age), a jump of $150 over the 2004 amount. The marriage penalty, as far as the standard deduction goes, has been eliminated, as it is now $10,000 for married couples filing jointly ($12,000 if both spouses were over 65 years of age in 2005).

As any motorist knows, the price of gasoline soared last year. The Internal Revenue Service has conceded as much but it has done so in a rather strange way. If you used your automobile for business in the first eight months of 2005, you are allowed to deduct 40.5 cents per mile driven as the standard rate. That amount shoots up to 48.5 cents per mile for miles driven from Sept. 1 to Dec. 31. Obviously, taxpayers will be on the honor system to report mileage or to at least make a reasonable attempt to calculate this deduction. As always, you can deduct the actual costs of repairs and gasoline if the actual receipts you have collected exceeds that of the standard mileage calculation. Higher gasoline costs has affected other deductions as well. The IRS has always allowed a deduction for the use of one’s car for doing charitable work, but it has long been a measly 14 cents per mile. That is still the case for the first eight months of 2005, but that figure jumped to 34 cents per mile for the period from Sept. 1 through Dec. 31. In addition, the IRS has permitted a deduction for transportation costs with respect to both medical and moving expenses. For both of these categories, the standard mileage rate is 15 cents per mile for the first eight months of 2005, and 22 cents per mile for the last third of the year. Don’t ask me why the tax laws allow different mileage rates for the different categories of deductions. You may have noticed that you were not as bombarded by radio ads urging you to donate your old car to a nonprofit organization at the end of 2005 as you were at the end of past years. That is because the IRS wants to crack down on an area where many were taking generous deductions in their opinion. Until 2005, the IRS basically went along with the car values listed in the Kelly Blue Book. Now it is demanding proof showing how much your car actually netted when it was sold by the charity in question. Apparently, the IRS felt that the Kelly listings were a bit inflated. If the charity did not sell your car but used it for its own operations, you will need documentation of that from the nonprofit organization and the Kelly Blue Book figure will be allowed. If you had an old clunker that you just wanted to get rid of, the IRS will allow you to take a deduction of $500 for the donation of your vehicle on Form 8283, no questions asked.

Read this entire article at the Queens Chronicle..

BY SUSAN TOMPOR
FREE PRESS COLUMNIST

Did you donate a clunker of a car last year? Well, do not dream of trying to take a loosey-goosey tax deduction for that charitable contribution this tax season.

New rules are hitting 2005 returns to prevent overinflated deductions for donated cars, boats and planes.

“I think there were some people who made their donations and were not even aware of the change in the law,” said Bob Scharin, editor of Warren, Gorham & Lamont/RIA’s Practical Tax Strategies, a tax journal in New York.

So beware before you file. Most taxpayers cannot simply go on to the Web, dig up a “fair market value” for a vehicle and take that as their deduction.

Read the rest of the story here @ the Detroit Free Press:
http://www.freep.com/apps/pbcs.dll/article?AID=/20060215/BUSINESS07/602150420