Tax law changes affect giving

Generous donors who give away their entire 2005 income before Dec. 31 are able to deduct the entire amount on their 2005 tax returns.

In January, the law will revert to the previous income-tax deduction limit of 50 percent of the donor’s income, which accountant David Myers, managing partner at Whitlock Selim & Keehn LLP, said most philanthropists don’t reach anyway.

“It might be the case if you had a real wealthy individual that wanted to just do something special in one year … but for the most part, that change doesn’t affect the way people give because most people don’t give half their income away in the first place,” Myers said.

James Lewis, accountant for Kirkpatrick, Phillips & Miller CPAs PC, said he’s had several clients take advantage of the temporary tax break designed to spur charitable giving and hurricane relief efforts. Three or four clients have given more than 50 percent of their income, but less than 100 percent.

“We have a lot of clients that make corporate donations to various charities, some for tax reasons and some just because it’s the right thing to do as a citizen of the community,” Lewis said.

According to the Congressional Budget Office Web site “the legislation provides tax relief for individuals and businesses who experienced property damage, creates a number of incentives for charitable giving and makes numerous other tax law changes. The provisions in the act will generally apply to tax years 2005 and 2006.”

The Joint Committee on Taxation estimated the act would reduce federal revenues by $3.2 billion in 2006 and by $6 billion from 2006 to 2010. It also estimated that direct spending would increase by $128 million in 2006 and by $2 million in 2007 as a result of this legislation.

“The rules can get pretty complicated depending on what was donated, who is making the donation and even what type of organization is receiving the donation,” Lewis said. “To complicate things even further, in the aftermath of Hurricane Katrina, the limits for deductible contributions have changed.”

Other small, non-Katrina-related, in-kind tax-law changes have either taken place this year or are poised to take effect in January.

Myers said tax laws related to automobile donations were changed in January 2005.

Previously, he said, donors could deduct the appraised value of a donated car even if the receiving charity sold the car for a lesser amount. Now, the donor can only deduct the amount of money for which the car is sold by the charity.

Lewis said computer donations are slated to change in January 2006, allowing businesses to donate used computers to schools and libraries and reap slightly more than the computers’ depreciated values.

Accountants Myers and Lewis cited state tax credits as ways to make giving more appealing.

Lewis said Missouri Neighborhood Assistance Program tax credits allow a donor to receive state tax credits of up to 70 percent of the total amount contributed.

The state’s Youth Opportunities Program tax credits also save donors money. The Missouri Department of Economic Development allotted more than $1.5 million in fiscal-year 2006 credits for 10 organizations in September. The credits go to charities undergoing construction projects or special program incentives.

“It ends up costing a donor very little to make a donation to one of these programs,” Lewis said.

Myers said, after deductions and tax credits, a married couple in the highest tax bracket ($326,000 annual income) would only spend 29 cents to make a $1 donation.

Julie Guillebeau, chief operating officer of the Council of Churches of the Ozarks, reminds donors of tax incentives with year-end mailings.

She said her organization, which served 19,353 people through November, gets as much as 60 percent of its annual donations in the year’s final quarter.

“A lot of people look at, ‘OK, (there’s) the tax deduction. If I give this before Dec. 31 then I can clear it on 2005 taxes,’” she said.

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