Charitable Contribution Incentives for Cash Gifts Temporarily Increased
by Dick Lankford
November 21, 2005
(AgapePress) - - The Hurricane Katrina relief bill has made changes to tax law that greatly encourage certain cash gifts made from August 28 until the end of the year. The new law increased the maximum amount of cash contributions that are deductible in any one year from 50 percent to 100 percent of adjusted gross income.Consider this example: under the old law, an individual with adjusted gross income of $200,000 made contributions totaling $50,000 prior to August 28. Wanting to help charities involved in Katrina relief, as well as other charities whose donations are down because of the hurricane, this individual contributes $150,000 cash to certain public charities between August 28 and the end of the year.
This donor will be able to deduct $200,000 for 2005, resulting in zero income tax. Under the old law, the donor would have been able to deduct only $100,000 in 2005, though the excess could have been carried forward for up to five additional years.
As with the 100 percent contribution limit, all donations made prior to August 28 and non-cash donations made at any time in 2005 will continue to be subject to the 3 percent reduction rule.
The increase in the deduction limit may also benefit people who have more money in the IRAs or other qualified plans than they will likely need for retirement security, and who are at least 59-and-a-half years of age.
In conclusion, donors should consult their tax advisors about both the optimum amount to contribute in 2005 and the advisability of making contributions from their IRAs or other qualified plans.
Dick Lankford directs the AFA Foundation, a division of the American Family Association dedicated to providing charitable giving and estate design tools. This article, reprinted with permission, appeared in the November/December 2005 issue of AFA Journal, a publication of the American Family Association.
