New recordkeeping requirements for cash contributions. You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written communication from the charity. The written communication must include the name of the charity, date of the contribution, and amount of the contribution. For more information, see Publication 526, Charitable Contributions.
Contributions to donor advised funds. You cannot deduct a contribution to a donor advised fund after February 13, 2007, if the sponsoring organization is a war veterans' organization, a fraternal society, or a nonprofit cemetery company. There are also other circumstances in which you cannot deduct your contribution to a donor advised fund. Generally, a donor advised fund is a fund or account in which a donor can, because of being a donor, advise the fund how to distribute or invest amounts held in the fund. For details, see Internal Revenue Code section 170(f)(18).
IR-2006-192, Dec.
14, 2006
WASHINGTON —
Individuals and
businesses making
contributions to
charity should keep
in mind several
important tax law
changes made last
summer by the
Pension Protection
Act.
The new law offers
older owners of
individual
retirement accounts
a new way to give to
charity. It also
includes rules
designed to provide
both taxpayers and
the government
greater certainty in
determining what may
be deducted as a
charitable
contribution. Some
of these changes
include the
following.
New
Tax Break for IRA
Owners
An
IRA owner, age 70 ˝
or over, can
directly transfer
tax-free, up to
$100,000 per year to
an eligible
charitable
organization. This
option is available
in tax years 2006
and 2007. Eligible
IRA owners can take
advantage of this
provision,
regardless of
whether they itemize
their deductions.
Distributions from
employer-sponsored
retirement plans,
including SIMPLE
IRAs and simplified
employee pension
(SEP) plans are not
eligible.
To
qualify, the funds
must be contributed
directly by the IRA
trustee to the
eligible charity.
Amounts so
transferred are not
taxable and no
deduction is
available for the
amount given to the
charity.
Not all charities
are eligible under
this provision. For
example,
donor-advised funds
and supporting
organizations are
not eligible
recipients.
Transferred amounts
are counted in
determining whether
the owner has met
the IRA’s required
minimum distribution
rules. Where
individuals have
made nondeductible
contributions to
their traditional
IRAs, a special rule
treats transferred
amounts as coming
first from taxable
funds, instead of
proportionately from
taxable and
nontaxable funds, as
would be the case
with regular
distributions.
Rules
for Clothing and
Household Items
To
be deductible,
clothing and
household items
donated to charity
after Aug. 17, 2006,
must be in good used
condition or better.
However, a taxpayer
may claim a
deduction of more
than $500 for any
single item,
regardless of its
condition, if the
taxpayer includes a
qualified appraisal
of the item with the
return. Household
items include
furniture,
furnishings,
electronics,
appliances, and
linens.
Guidelines for
Monetary Donations
To
deduct any
charitable donation
of money, a taxpayer
must have a bank
record or a written
communication from
the charity showing
the name of the
charity and the date
and amount of the
contribution. A bank
record includes
canceled checks,
bank or credit union
statements and
credit card
statements. Bank or
credit union
statements should
show the name of the
charity and the date
and amount paid.
Credit card
statements should
show the name of the
charity and the
transaction posting
date.
Donations of money
include those made
in cash or by check,
electronic funds
transfer, credit
card, and payroll
deduction. For
payroll deductions,
the taxpayer should
retain a pay stub,
Form W-2 wage
statement or other
document furnished
by the employer
showing the total
amount withheld for
charity, along with
the pledge card
showing the name of
the charity.
Prior law allowed
taxpayers to back up
their donations of
money with personal
bank registers,
diaries or notes
made around the time
of the donation.
Those types of
records are no
longer sufficient.
This provision
applies to
contributions made
in taxable years
beginning after Aug.
17, 2006. For
taxpayers that file
returns on a
calendar-year basis,
including most
individuals, the new
provision applies to
contributions made
beginning in 2007.
The new law does not
change the prior-law
requirement that a
taxpayer get an
acknowledgement from
a charity for each
deductible donation
(either money or
property) of $250 or
more. However, one
statement containing
all of the required
information may meet
the requirements of
both provisions.
To
help taxpayers plan
their holiday-season
and year-end
donations, the IRS
offers the following
additional
reminders:
Contributions
are
deductible
in the year
made. Thus,
donations
charged to a
credit card
before the
end of the
year count
for 2006.
This is true
even if the
credit-card
bill isn’t
paid until
next year.
Also, checks
count for
2006 as long
as they are
mailed this
year.
Check that
the
organization
is
qualified.
Only
donations to
qualified
organizations
are
tax-deductible.
IRS
Publication
78,
available
online and
at many
public
libraries,
lists most
organizations
that are
qualified to
receive
deductible
contributions.
The
searchable
online
version can
be found on
IRS.gov
under,
“Search for
Charities.”
In addition,
churches,
synagogues,
temples,
mosques and
government
agencies are
eligible to
receive
deductible
donations,
even though
they often
are not
listed in
Publication
78.
For
individuals,
only
taxpayers
who itemize
their
deductions
on Schedule
A can claim
a deduction
for
charitable
contributions.
This
deduction is
not
available to
people who
choose the
standard
deduction,
including
anyone who
files a
short form
(1040A or
1040EZ). A
taxpayer
will have a
tax savings
only if the
total
itemized
deductions
(mortgage
interest,
charitable
contributions,
state and
local taxes,
etc.)
exceeds the
standard
deduction.
Use the 2006
Schedule A,
available
now on
IRS.gov, to
determine
whether
itemizing is
better than
claiming the
standard
deduction.
For all
donations of
property,
including
clothing and
household
items, get
from the
charity, if
possible, a
receipt that
includes a
description
of the
donated
property. If
a donation
is left at a
charity’s
unattended
drop site,
keep a
written
record of
the donation
that
includes a
description
of the
property and
its
condition.
The
deduction
for a motor
vehicle,
boat or
airplane
donated to
charity is
usually
limited to
the gross
proceeds
from its
sale. This
rule applies
if the
claimed
value of the
vehicle is
more than
$500. Form
1098-C, or a
similar
statement,
must be
provided to
the donor by
the
organization
and attached
to the
donor’s tax
return. See
IRS
Publication
526,
Charitable
Contributions,
for more
information.
Active-Duty
Reservists Get Relief on Retirement Plan Payments:
Refunds of 10-Percent Tax Available Back to 2001, New
Law Says
IR-2006-152,
Sept. 28, 2006
WASHINGTON —
Military reservists called to
active duty can receive payments
from their individual retirement
accounts, 401(k) plans and
403(b) tax-sheltered annuities,
without having to pay the
early-distribution tax,
according to the Internal
Revenue Service.
The
newly-enacted Pension Protection
Act of 2006 eliminates the
10-percent early-distribution
tax that normally applies to
most retirement distributions
received before age 59˝. The new
law provides this relief to
reservists called to active duty
for at least 180 days or for an
indefinite period.
Eligible
reservists activated after Sept.
11, 2001, and before Dec. 31,
2007, qualify for relief from
this tax. This tax is often
referred to as the 10-percent
early-withdrawal penalty.
Regular income taxes continue to
apply to these payments in most
cases.
Early
distributions from both Roth and
traditional IRAs received by a
reservist while on active duty
qualify for this relief.
Likewise, a reservist’s elective
contributions and earnings
distributed to him or her by
employer sponsored 401(k) plans
and 403(b) tax-sheltered
annuities also qualify for this
relief.
Because this
relief is retroactive, eligible
reservists who already paid the
10-percent tax can claim a
refund by using Form 1040X to
amend their return for the year
in which the retirement
distribution was received.
Eligible reservists should write
the words, "active duty
reservist," at the top of the
form. In Part II Explanation of
Changes, the reservist should
write the date he or she was
called to active duty, the
amount of the retirement
distribution and the amount of
early-distribution tax paid.
Reservists can
choose to re-contribute part or
all of these distributions to an
IRA. Ordinarily, these special
contributions must be made
within two years after the
reservist's active-duty period
ends. However, if the
reservist's active duty ended
before Aug. 17, 2006 (the date
the new law was enacted), he or
she will have until Aug. 17,
2008, to make these special
contributions. No deduction is
available for these
contributions.
Offset
Education Costs
IRS Tax Tip
2006-48
Education tax credits can help
offset the costs of higher
education for yourself or a
dependent. The Hope Credit and
the Lifetime Learning Credit are
two education credits available
which may benefit you. You may
be able to subtract them in full
from your federal income tax,
rather than just deducting from
your taxable income.
The
Hope Credit
• Applies only for the first two
years of post-secondary
education, such as college or
vocational school. It does not
apply to graduate and
professional-level programs.
• It can be worth up to $1,500
per eligible student, per year.
• You're allowed 100% of the
first $1,000 of qualified
tuition and related fees paid
during the tax year, plus 50% of
the next $1,000.
• Each
student must be enrolled at least half-time for at
least one academic period which began during the
year.
The
Lifetime Learning Credit
• Applies to undergraduate,
graduate and professional degree
courses, including instruction
to acquire or improve job
skills.
• If you qualify, your credit
equals 20% of the first $10,000
of post-secondary tuition and
fees you pay during the year,
for a maximum credit of $2,000
per tax return.
You cannot
claim both the Hope and Lifetime
Learning Credits for the same
student in the same year.
To qualify for
either credit, you must pay
post-secondary tuition and fees
for yourself, your spouse or
your dependent. The credit may
be claimed by the parent or the
student, but not by both.
Students who are claimed as a
dependent cannot claim the
credit.
These credits
are phased out for Modified
Adjusted Gross Income over
$43,000 ($87,000 for married
filing jointly) and eliminated
completely for Modified AGI of
$53,000 or more ($107,000 for
married filing jointly). If the
taxpayer is married, the credit
may be claimed only on a joint
return.
New Law
Expands IRA Options for Military; Many Can Still
Contribute for 2004 and 2005
IR-2006-129,
Aug. 18, 2006
WASHINGTON —
Members of the military serving
in Iraq, Afghanistan and other
combat zone localities can now
put money into an individual
retirement account, even if they
received tax-free combat pay,
according to the Internal
Revenue Service.
Under the
Heroes Earned Retirement
Opportunities (HERO) Act, signed
into law on Memorial Day,
taxpayers can now count tax-free
combat pay when determining
whether they qualify to
contribute to either a Roth or
traditional IRA. Before this
change, members of the military
whose earnings came entirely
from tax-free combat pay were
generally barred from using IRAs
to save for retirement.
“The HERO act is one more way to
let our fighting forces in
combat areas know that we
support them,” said IRS
Commissioner Mark W. Everson.
“This is a good way for people
serving in combat zones to save
more of their earnings for
retirement.”
In addition,
the HERO Act allows military
personnel who received tax-free
combat pay in either 2004 or
2005 to go back and make IRA
contributions for those years.
Eligible military members will
have extra time, until May 28,
2009, to make these special
back-year contributions.
For those under the age of 50,
the IRA contribution limit was
$3,000 for 2004 and $4,000 for
2005. For those 50 and over, the
limit was $3,500 for 2004 and
$4,500 for 2005.
Taxpayers
choosing to put money into a
Roth IRA don’t need to report
these contributions on their
individual tax return. Roth
contributions are not
deductible, but distributions,
usually after retirement, are
normally tax-free. Income limits
and other special rules apply.
On the other
hand, contributions to a
traditional IRA are often,
though not always, deductible,
and distributions are generally
taxable.
Deductible or
not, contributions to a
traditional IRA must be reported
on the return for the year made.
Deductible contributions are
claimed on Form 1040, 1040A or
1040NR. Nondeductible
contributions are reported on
Form 8606, which is normally
attached to one of these
individual return Forms.
If a return
has already been filed for a
particular year, contributions
should be reported on an amended
return, Form 1040X. Depending
upon the circumstances, military
personnel who choose to put
money into a traditional IRA for
2004 or 2005 may qualify for
additional tax refunds.
For those planning ahead, the
IRA contribution limit for 2006
is $4,000 for those under age 50
and $5,000 for those 50 and
over.
Hybrid
Credits
I
2008 Model Year Hybrid
Vehicles
Make
Model
Credit
Amount
Chevrolet
Malibu
Hybrid
$1,300
Chevrolet
Tahoe Hybrid 2WD and
4WD
$2,200
Ford
Escape Hybrid
2WD
$3,000
Ford
Escape Hybrid
4WD
$2,200
GMC
Yukon Hybrid
$2,200
Honda**
Civic CVT
Purchase Date
Prior to 1/1/08
$2,100
1/1/08 -- 6/30/08
$1,050
7/1/08 -- 12/31/08
$525
1/1/09 and later
$0
Mazda
Tribute 2WD
$3,000
Mazda
Tribute 4WD
$2,200
Mercury
Mariner Hybrid
2WD
$3,000
Mercury
Mariner Hybrid
4WD
$2,200
Nissan
Altima Hybrid
$2,350
Saturn
Aura
hybrid
$1,300
Saturn
Vue Green Line
$1,550
Toyota*
Camry Hybrid
Purchase Date
1/1/06 -- 9/30/06
$2,600
10/1/06 --3/31/07
$1,300
4/1/07 -- 9/30/07
$
650
10/1/2007 and
later
$
0
Toyota*
Prius
Purchase Date
1/1/06 -- 9/30/06
$3,150
10/1/06 --3/31/07
$1,575
4/1/07 -- 9/30/07
$787.50
10/1/2007 and
later
$
0
Toyota*
Highlander Hybrid
4WD
Purchase Date
1/1/06 -- 9/30/06
$2,600
10/1/06 --3/31/07
$1,300
4/1/07 -- 9/30/07
$
650
10/1/2007 and
later
$
0
Lexus*
RX 400h 2WD and
4WD
Purchase Date
1/1/06 -- 9/30/06
$2,200
10/1/06 --3/31/07
$1,100
4/1/07 -- 9/30/07
$
550
10/1/2007 and
later
$
0
Lexus*
LS 600h L Hybrid
Purchase Date
1/1/06 -- 9/30/06
$1,800
10/1/06 --3/31/07
$900
4/1/07 -- 9/30/07
$
450
10/1/2007 and
later
$
0
2007 Model Year Hybrid
Vehicles
Make
Model
Credit
Amount
Chevrolet
Silverado 2WD Hybrid Pickup
Truck
$ 250
Chevrolet
Silverado 4WD Hybrid Pickup
Truck
$ 650
Ford
Escape Hybrid 2WD
$2,600
Ford
Escape Hybrid 4WD
$1,950
GMC
Sierra 2WD Hybrid Pickup
Truck
$ 250
GMC
Sierra 4WD Hybrid Pickup
Truck
$ 650
Honda**
Accord Hybrid AT
Purchase Date
Prior to 1/1/08
$1,300
1/1/08 -- 6/30/08
$
650
7/1/08 -- 12/31/08
$ 325
1/1/09 and later
$
0
Honda
Accord Hybrid Navi
AT
Purchase Date
Prior to 1/1/08
$1,300
1/1/08 -- 6/30/08
$
650
7/1/08 -- 12/31/08
$ 325
1/1/09 and later
$
0
Honda
Civic Hybrid CVT
Purchase Date
Prior to 1/1/08
$2,100
1/1/08 -- 6/30/08
$1,050
7/1/08 -- 12/31/08
$525
1/1/09 and later
$0
Lexus*
GS450h
Purchase Date
1/1/06 -- 9/30/06
$1,550
10/1/06 --3/31/07
$
775
4/1/07 -- 9/30/07
$ 387.50
10/1/2007 and
later
$
0
Lexus *
RX 400h 4WD
Purchase Date
1/1/06 -- 9/30/06
$2,200
10/1/06 --3/31/07
$1,100
4/1/07 -- 9/30/07
$
550
10/1/2007 and
later
$
0
Lexus*
RX 400h 2WD
Purchase Date
1/1/06 -- 9/30/06
$2,200
10/1/06 --3/31/07
$1,100
4/1/07 -- 9/30/07
$
550
10/1/2007 and
later
$
0
Mercury
Mariner Hybrid 4WD
$1,950
Nissan
Altima Hybrid
$2,350
Saturn
Aura
$1,300
Saturn
Vue Green Line
$ 650
Toyota*
Camry Hybrid
Purchase Date
1/1/06 -- 9/30/06
$2,600
10/1/06 --3/31/07
$1,300
4/1/07 -- 9/30/07
$
650
10/1/2007 and
later
$
0
Toyota*
Prius
Purchase Date
1/1/06 -- 9/30/06
$3,150
10/1/06 --3/31/07
$1,575
4/1/07 -- 9/30/07
$787.50
10/1/2007 and
later
$
0
Toyota*
Highlander Hybrid
2WD
Purchase Date
1/1/06 -- 9/30/06
$2,600
10/1/06 --3/31/07
$1,300
4/1/07 -- 9/30/07
$
650
10/1/2007 and
later
$
0
Toyota*
Highlander Hybrid
4WD
Purchase Date
1/1/06 -- 9/30/06
$2,600
10/1/06 --3/31/07
$1,300
4/1/07 -- 9/30/07
$
650
10/1/2007 and
later
$
0
*
Credit for Toyota/Lexus vehicles are
reduced for purchase after 10-1-06. See
Notice 2006-78 for additional
information.
**
Credits for Honda vehicles are reduced for
purchase after 1-1-08. See Notice 2007-98
for additional
information.
2006 Model Year Hybrid
Vehicles
Make
Model
Credit
Amount
Chevrolet
Silverado 2WD Hybrid Pickup
Truck
$ 250
Chevrolet
Silverado 4WD Hybrid Pickup
Truck
$ 650
Ford
Escape Hybrid 2WD Front Wheel
Drive
$2,600
Ford
Escape Hybrid
4WD
$1,950
GMC
Sierra 2WD Hybrid Pickup
Truck
$ 250
GMC
Sierra 4WD Hybrid Pickup
Truck
$ 650
Honda**
Accord Hybrid AT w/updated
calibration*
Purchase Date
Prior to 1/1/08
$1,300
1/1/08 -- 6/30/08
$650
7/1/08 -- 12/31/08
$325
1/1/09 and later
$ 0
Honda**
Accord Hybrid AT without updated
calibration*
Purchase Date
Prior to 1/1/08
$650
1/1/08 -- 6/30/08
$325
7/1/08 -- 12/31/08
$162.50
1/1/09 and later
$ 0
Honda**
Navi AT w/updated
calibration*
Purchase Date
Prior to 1/1/08
$1,300
1/1/08 -- 6/30/08
$650
7/1/08 -- 12/31/08
$325
1/1/09 and later
$ 0
Honda**
Navi AT without updated
calibration*
Purchase Date
Prior to 1/1/08
$650
1/1/08 -- 6/30/08
$325
7/1/08 -- 12/31/08
$162.50
1/1/09 and later
$ 0
Honda**
Civic Hybrid CVT
Purchase Date
Prior to 1/1/08
$2,100
1/1/08 -- 6/30/08
$1,050
7/1/08 -- 12/31/08
$525
1/1/09 and later
$0
Honda**
Insight CVT
Purchase Date
Prior to 1/1/08
$1,450
1/1/08 -- 6/30/08
$
725
7/1/08 -- 12/31/08
$362.50
1/1/09 and later
$0
Lexus*
RX400h 2WD
Purchase Date
1/1/06 -- 9/30/06
$2,200
10/1/06 --3/31/07
$1,100
4/1/07 -- 9/30/07
$
550
10/1/2007 and
later
$
0
Lexus*
RX400h 4WD
Purchase Date
1/1/06 -- 9/30/06
$2,200
10/1/06 --3/31/07
$1,100
4/1/07 -- 9/30/07
$
550
10/1/2007 and
later
$
0
Mercury
Mariner 4WD Hybrid
$1,950
Toyota*
Highlander 2 WD
Hybrid
Purchase Date
1/1/06 -- 9/30/06
$2,600
10/1/06 --3/31/07
$1,300
4/1/07 -- 9/30/07
$
650
10/1/2007 and
later
$
0
Toyota*
Highlander 4WD
Hybrid
Purchase Date
1/1/06 -- 9/30/06
$2,600
10/1/06 --3/31/07
$1,300
4/1/07 -- 9/30/07
$
650
10/1/2007 and
later
$
0
Toyota*
Prius
Purchase Date
1/1/06 -- 9/30/06
$3,150
10/1/06 --3/31/07
$1,575
4/1/07 -- 9/30/07
$787.50
10/1/2007 and
later
$ 0
*
Credit for Toyota/Lexus vehicles are
reduced for purchase after 10-1-06. See
Notice 2006-78 for additional
information.
**
Credits for Honda vehicles are reduced for
purchase after 1-1-08. See Notice 2007-98
for additional
information.
IRS Warns of
Questionable Deductions for Donated Vehicles
IR-2005-145, Dec. 20, 2005
WASHINGTON — Internal Revenue Service
officials announced today that the IRS will not
recognize certain deductions that taxpayers may be
claiming relating to donated vehicles sold at auction.
IRS officials took this step after
becoming aware of questionable practices that have
surfaced recently. Some charities have sold donated
vehicles at auction and claimed that the sales are to
needy individuals at prices significantly below fair
market value. By doing so, these charities have claimed
that the sales trigger an exception to the general rule
that the deduction allowed to the donor is limited to
the proceeds from the charity’s sale.
The IRS’ position is that vehicles
sold at auction are not sold at prices significantly
below fair market value. Therefore, the IRS will not
treat vehicles sold at auction as qualifying for the
exception for sales to needy individuals at prices below
fair market value.
If a charity sells a donated vehicle
at auction, the IRS will not accept as substantiation an
acknowledgment from the charity stating that the vehicle
is to be transferred to a needy individual for
significantly below fair market value (Box 5b on IRS
Form 1098-C). In such cases, the donor may claim a
deduction of more than $500 only to the extent that the
gross proceeds from the sale exceed that amount and the
donor substantiates the contribution with an
acknowledgment from the charity that indicates the gross
proceeds from the sale (Box 4c on IRS Form 1098-C).
The rules for determining the amount
that a donor may deduct for a charitable contribution of
a qualified vehicle, including an automobile, with a
claimed value of more than $500 changed at the beginning
of 2005 as a result of the American Jobs Creation Act
of 2004. In general, that Act limits a donor’s deduction
to the amount of the gross proceeds from the charity’s
sale of the vehicle.
Under an exception to this general
rule, a donor may be eligible to claim a fair market
value deduction if the vehicle is sold at a price
significantly below fair market value to a needy
individual, in direct furtherance of a charitable
purpose of the recipient organization of relieving the
poor and distressed or the underprivileged who are in
need of a means of transportation. In this case, the
charity provides to the donor an acknowledgment
indicating that the donor may claim a fair market value
deduction for the vehicle.
Because this exception does not apply
to sales at auction, a charity may be subject to
penalties under sections 6701 and 6720 of the Internal
Revenue Code if the charity sells a donated vehicle at
auction and provides to the donor an acknowledgment that
indicates anything other than the deduction may not
exceed the gross proceeds from the sale.