Millions of Americans have opened their hearts and wallets even wider over this past year due to devastating tragedies here and around the world. In response, businesses from the largest corporations to the one-person shops and individuals of all ages have sent donations and volunteered in unprecedented effortsto help others rebuild their shattered lives.
In the wake of the many natural disasters that have recently occurred here and abroad, Congress passed the Katrina Emergency Tax Relief Act (KETRA) on September 23. This temporary measure allows most taxpayers who itemize to deduct up to 100% of their Adjusted Gross Income (AGI) for cash contributions made to qualified charitable organizations between August 28 and December 31. The usual limit is 50% of AGI for these gifts made during the full year with a five-year carry-forward for unused deductions.
For individuals, partnerships and S-corporations, these excess contributions are not limited to Katrina relief efforts, but can be made to most public charities of the donor's choice. However for corporations, the donations must be for Katrina relief to qualify for added tax benefits.
This short-term tax relief was also enacted to help organizations that are increasingly concerned about "donor fatigue" as they gear up for year-end appeals, especially traditional holiday and cold-weather programs.
With the temporary 100% gifts rule, there are several exceptions. Charitable gifts to most private foundations, supporting organizations and donor advised funds (either through community foundations or financial entities) do not qualify for special relief. Also charitable instruments that provide income to the donor, as well as gifts of securities, real estate or other tangible property are not eligible.
Even with these limitations, this short-term tax measure offers unique planning opportunities for donors with strong charitable intent who wish to increase their year-end giving. This could be an ideal time to fulfill a multi-year pledge or to proceed with a major contribution to fund a special program or capital campaign.
Donors over 59, might consider withdrawing funds from IRA's, other retirement plans or deferred annuities this year and making like-sized gifts to favorite qualified charities. The taxable income generated can be offset with the unlimited charitable deduction, with negligible tax effect for most. As withdrawals from custodians can take two or three weeks, requests should be made early so that funds can be received and gifts completed before the December 31 deadline.
A potential donor could face a dilemma when considering a 2005 year-end gift from appreciated holdings, such as securities or real property; however, detailed gifting calculations can help determine the probable net results. The donor could contribute the appreciated asset at market value, allowing the organization to then sell, thereby avoiding the capital gains tax. The charitable deduction would be limited to a maximum of 30% of income (or 50% if asset's cost basis used), with a five-year carryover for unused deductions. Or the donor might choose to sell the asset, realizing the capital gain on the sale, and then make a cash donation that could qualify for up to 100% deduction for this year
Before making any major or planned charitable gift, donors should seek expert advice from a financial or tax professional, including serious number-crunching to assure the most prudent benefits while avoiding unintended consequences from other areas of tax law.
Gina McBride of McBride Financial Advisory, Consulting & Communications, is a Certified Financial Planner,, Certified Specialist in Planned Giving and a Senior Advisor. She can be reached at (760) 918-9361 or [email protected].
In the wake of the many natural disasters that have recently occurred here and abroad, Congress passed the Katrina Emergency Tax Relief Act (KETRA) on September 23. This temporary measure allows most taxpayers who itemize to deduct up to 100% of their Adjusted Gross Income (AGI) for cash contributions made to qualified charitable organizations between August 28 and December 31. The usual limit is 50% of AGI for these gifts made during the full year with a five-year carry-forward for unused deductions.
For individuals, partnerships and S-corporations, these excess contributions are not limited to Katrina relief efforts, but can be made to most public charities of the donor's choice. However for corporations, the donations must be for Katrina relief to qualify for added tax benefits.
This short-term tax relief was also enacted to help organizations that are increasingly concerned about "donor fatigue" as they gear up for year-end appeals, especially traditional holiday and cold-weather programs.
With the temporary 100% gifts rule, there are several exceptions. Charitable gifts to most private foundations, supporting organizations and donor advised funds (either through community foundations or financial entities) do not qualify for special relief. Also charitable instruments that provide income to the donor, as well as gifts of securities, real estate or other tangible property are not eligible.
Even with these limitations, this short-term tax measure offers unique planning opportunities for donors with strong charitable intent who wish to increase their year-end giving. This could be an ideal time to fulfill a multi-year pledge or to proceed with a major contribution to fund a special program or capital campaign.
Donors over 59, might consider withdrawing funds from IRA's, other retirement plans or deferred annuities this year and making like-sized gifts to favorite qualified charities. The taxable income generated can be offset with the unlimited charitable deduction, with negligible tax effect for most. As withdrawals from custodians can take two or three weeks, requests should be made early so that funds can be received and gifts completed before the December 31 deadline.
A potential donor could face a dilemma when considering a 2005 year-end gift from appreciated holdings, such as securities or real property; however, detailed gifting calculations can help determine the probable net results. The donor could contribute the appreciated asset at market value, allowing the organization to then sell, thereby avoiding the capital gains tax. The charitable deduction would be limited to a maximum of 30% of income (or 50% if asset's cost basis used), with a five-year carryover for unused deductions. Or the donor might choose to sell the asset, realizing the capital gain on the sale, and then make a cash donation that could qualify for up to 100% deduction for this year
Before making any major or planned charitable gift, donors should seek expert advice from a financial or tax professional, including serious number-crunching to assure the most prudent benefits while avoiding unintended consequences from other areas of tax law.
Gina McBride of McBride Financial Advisory, Consulting & Communications, is a Certified Financial Planner,, Certified Specialist in Planned Giving and a Senior Advisor. She can be reached at (760) 918-9361 or [email protected].