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Pension Protection Act tightens tax laws for donations.
by Jeff Curnow –
Jeff Curnow—facts on tax law changes from MSNBC article by Aswini Anburajan.
For the first time since 1969, the rules governing tax write-offs for charitable giving have been substantially tightened, many of them as a result of the Pension Protection Act passed last year by Congress.
The rules only apply to the 30 percent of taxpayers who itemize their deductions. Taxpayers are now required to document giving in all shapes and sizes, from used cars to used clothing.
The IRS will no longer accept estimates of the value of bags of used clothing, change dropped in the Red Kettle or other small donations that are crucial to the Army’s work.
The new rules also mandate that donated items be in usable condition, and any deduction greater than $500 for a single item be accompanied by an official appraisal.
Also, donors of big-ticket items such as used cars may deduct only the amount the charity receives from the sale of the item, not the item’s “fair market value.” Congress estimates that this provision alone will generate $3 billion in new tax revenues over the next 10 years.
Barriers to giving
About the new rules’ effect on donations, Major Ron Strickland, USA West adult rehabilitation center commander remarked:
“There is good news and bad news concerning recent changes of rules governing tax write-offs for charitable giving of donations in kind. The good news is that the new tax law makes it easier for us to turn down unusable donations in kind…the bad news is that some of the unusable donations such as marginal clothing could be processed via the recycling market, which does generate income for our rehabilitation programs.
“I also believe that the donors will become confused concerning what is usable or unusable and out of frustration, not give at all and/or reduce their giving.
“Another concern for us is that appraisals required for items over $500 (currently $5,000) will discourage the giving of larger/nicer items such as furniture and lower priced vehicles.
Bar raised for monetary donations too
Previously, monetary donations under $250 did not require a receipt, but now they need to be accompanied by a “statement of proof,” such as a copy of a check, a bank statement or a dated communication from the charity.
Melissa Temme, national public relations director for the Salvation Army, said practices regarding cash donations for Red Kettles will not change. “If donors want a receipt, she said, they can drop in a check with their address on it. The thank you notes The Salvation Army mails them can be used for tax purposes.”
Planned giving vehicles such as donor advised funds will also come under much higher scrutiny under the new tax laws.
While overall the Army hopes to see little impact from the new rules, Strickland expressed concern that any added complications in the giving process may be harmful: “I do believe that the more encumbrances placed on the donor, the more they are likely to get discouraged in giving to their charity.”