|10 tax law changes in new pension law
This new requirement will likely get more attention in December, as folks make year-end donations to maximize annual charitable write-offs.
The IRS also wants you to get more substantiation for your cash gifts, which include actual dollars, checks and credit card donations.
Previously, you had to get a receipt or other acknowledgement from a charity if you gave $250 or more. Now, for a monetary gift of any amount, you've got to have "a bank record or a written communication" from the charity detailing the group's name and the date and amount of the gift.
A canceled check is fine. If you charge a contribution, your credit card statement should be sufficient. And many charities already provide a receipt for all monetary gifts, regardless of the amount.
You don't have to send these contribution confirmations in with your return. Just have them on hand if the IRS asks. And the tougher substantiation rule doesn't take effect until 2007, so you don't have to reconstruct all those smaller amounts you gave earlier this year.
Giving away IRA money
One new charitable tax provision will please older philanthropists and the groups they support.
If you are 70½ or older, you can have money from your IRA sent directly to a charitable organization. This is most beneficial to traditional IRA holders, since much of the money in these accounts is eventually taxable, but the option also is available to Roth account holders.
The main benefit for taxpayers is that the IRA gift
keeps the donated amount out of the giver's taxable income tally,
thereby lowering the filer's tax bill a bit.
It could also be a worthwhile giving method for filers
who otherwise wouldn't get a tax deduction, such as those who take
the standard deduction.
Many older filers claim the standard amount, says
Scharin, because they get a larger
standard deduction than younger taxpayers. They also are more
likely to have paid off or paid down their mortgages, meaning they
no longer have it and other large amounts to itemize.
"If someone is claiming the standard deduction, they're not getting charitable contribution tax benefits anyway," Scharin says, "so now you can at least avoid paying tax on the IRA distribution."
This also might be a good strategy for individuals who face donation limits based on their income. Generally, you cannot donate an amount that exceeds 50 percent of your adjusted gross income. But when the money goes directly to the charity from the IRA, it doesn't count against that limit because it's not included in gross income, says Scharin.
If this giving technique works for you, and you're
old enough to use it, make plans now. This provision is only in
effect for 2006 and 2007.
And remember that no double dipping is allowed. Since
this distribution is tax-free, if you do itemize you cannot deduct
the gift on your Schedule A. The ability to keep the money out of
your taxable income, however, should help offset the deduction loss.
Freelance writer Kay Bell writes Bankrate's tax stories and blogs on taxes from her home in Austin, Texas.