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Bankrate's 2010 Tax Guide
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Special tax rules for some donations

Charities must tell you what they intend to do with your auto when you donate. If it is sold, the group must send you a statement with the sales amount for your tax filing purposes.

Go ahead and donate your car if you want. Just don't presume that it will get you the largest possible tax break.

A new option for older donors

While the auto and noncash contribution rules have been tightened, federal lawmakers decided to make it easier for one group of taxpayers to give.

The Pension Protection Act, which in 2006 changed the clothing and household goods rules, also included a provision that allows IRA owners who are at least 70½ to transfer money directly from a retirement account to a charity. This option has been extended through 2009.

The age is a key one for traditional IRA owners. When they reach that age, they must start taking some money from the plan by at least April 1 of the following year, even if they don't need it. The exact amount, referred to as a required minimum distribution, is based on a formula detailed in an IRS table. The reason: Uncle Sam is tired of waiting for his payment on the money and earnings that have been sitting, tax-deferred, in the account for years.

For 2009, however, a new law waived the RMD rule because many retired account holders have seen the value of their nest eggs decline during the recent market downturn. But the option to transfer some IRA money to a charity remains and some taxpayers still might want to take advantage of the opportunity.

You can shift up to $100,000 directly from your IRA or other tax-deferred retirement plan to your favorite charity. The transferred gift to the charity doesn't count as taxable income because the IRA owner never took possession of it. However, neither can you deduct the donation on your tax return.

Tougher documentation

The IRS now demands additional documentation for every monetary charitable gift, regardless of how small or large, that you've made since Jan. 1. This includes donations of cash or by check, electronic funds transfers, credit card charges and payroll deductions.

Previously, taxpayers could substantiate donations of money using notations in personal bank registers, diaries or notes made around the time of the gift. Those types of records are no longer sufficient.

Now, the IRS requires you show an official bank record or a written statement from the charity showing the organization's name and the date and amount of the contribution.

An acceptable bank record would be a canceled check, a bank or credit union statement that shows the name of the charity and the date and amount paid, or a credit card statement indicating the charity and the transaction posting date.

In the case of payroll deductions, you need to hang onto any pay stub, Form W-2 wage statement or other employer-furnished document that shows the total amount withheld for charity, along with the pledge card showing the name of the charity.

You don't have to file the receipts with your returns. But if the IRS ever questions your contributions, the deduction can be immediately disallowed without the required documentation.

And the existing law that demands you get an acknowledgement from a charity for each deductible donation, either money or property, of $250 or more will still be in effect in conjunction with the more stringent documentation rule. In these cases, though, you might be able to consolidate your record keeping by getting a statement that details all of the required information on all your donations.

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