Katrina Emergency Tax Relief Act: Special Tax Incentives to Increase Charitable Gifts By Candace Clark, Associate Director of Planned Giving At the end of September, President Bush signed into law a measure that allows donors to take up to 100 percent of their income for cash donations they make from August 28 through the end of the year. The tax savings are significant since typically donors cannot deduct more than 50 percent of their adjusted gross income for cash charitable contributions. Highlights:
What about appreciated stock ?Normally, donors save on taxes by transferring stock that has appreciated in value directly to a charity, avoiding capital gains tax. With the 100 percent deduction ceiling in place, many donors may be better off selling their stock and making a cash gift to charity with the proceeds, because the savings from the charitable deduction could be worth more than they would pay in capital gains tax. Gift Opportunities with IRAs and Qualified Retirement Plans. Because of the increase in the deduction limit, people who have more money in their IRAs or other qualified plans than they will likely need for retirement security, and who are at least 59 and 1/2 years of age, may want to consider withdrawing assets and contributing them to a charity. As before, upon withdrawal, the assets will be added to adjusted gross income, but the full amount added to income will then be deductible from income, resulting in a “wash.” However, before taking such action, donors should consider how increasing their adjusted gross income may reduce the amount they can deduct for medical expenses and casualty losses, accelerate the phaseout of personal exemptions, and cause some loss of other itemized deductions. Although the amount withdrawn from an IRA or other qualified plan and then contributed will not be affected by the three percent reduction in itemized deductions, other itemized deductions, as well as the personal exemption, may be diminished with a rise in adjusted gross income. We highly encourage donors to consult with their financial advisers before making a gift to insure that they can take as large a benefit as possible from this special opportunity and to avoid any unforeseen tax consequences based on their own special circumstances.
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October 2006 ContentsKatrina Emergency Tax Relief Act: Special Tax Incentives to Increase Charitable Gifts Everything Speaks: Brand Identity for Nonprofits (Part 1 of 2) Oh! The Humanity! Keeping it Real in a Virtual World Archived Newsletters
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