Reprinted By Permission - Copyright

Making Money Matter

The Daily Camera

By Enid Ablowitz

THE IRS GIVES TO GIVERS

Trick or treat, falling leaves, and preparations for the Thanksgiving feast usually signal the beginning of the season of giving. Yet the recent natural catastrophes that caused death, destruction and displacement jumpstarted the season as people opened their hearts and their checkbooks.  This Thanksgiving many will have much to be grateful for as we reflect on all that is good in our lives, and many will continue to suffer.

Traditionally at this time of year I urge you to have the “giving” conversation with your family and your circle of friends.  Come together around the holiday table and around the concept of philanthropy, no matter how large or small your gifts may be.  Talk about why you give, how you give, and how much you give. Find what motivates you to share your bounty, then act on what you’ve learned about yourself and what matters to you.

With the generosity that has been demonstrated in response to tragedy, many have wondered if people will still give to support the causes they have in the past.  There is some fear that giving for hurricane relief was simply redirected from other anticipated giving and that people may feel they have done their part. 

It is critically important to understand that donated funds are the foundation of support that underpin our society—that the private sector and voluntary contributions of resources allow the not-for-profit organizations to function.

There is an important way the federal government encourages giving:  through tax relief.   While most of us are aware that there are charitable deductions and other tax incentives for qualified donations, this year, the IRS is stimulating increased generosity by suspending some of the deductibility limitations that apply to cash gifts.  Until December 31, the “Katrina Emergency Tax Relief Act of 2005” (KETRA) gives you the opportunity to give more.  In fact, you can give (to qualified charities) up to 100% of your “contribution base,” which for most taxpayers is the same as your adjusted gross income (AGI).  KETRA is a short-term window of opportunity for a donor who wishes to make a significant charitable contribution prior to calendar year-end, even if you may have carry-over of unused charitable deductions from prior years.

Let’s suppose you have already made a significant gift for Katrina relief this year and you realize you have reached the usual limit of your deductibility for cash gifts for the year (50% of AGI.)  You don’t have to wait until 2006 to make a deductible gift to the other charities you generally support.

For example, suppose you have an adjusted gross income of $125,000.  It would be possible to make charitable cash contributions equal to the full amount of your AGI and potentially reduce your income tax liability to zero.  If you already made charitable cash gifts, you could add to those gifts, up to the limit of your AGI.  If you had a windfall this year or had significant income enhancement, this may be the time to consider making a major gift.

Now, nothing is simple when you are dealing with the IRS, so you need to be careful and check with your tax advisor.  Among things to consider:

            The gift must be a cash gift. 

            Other limits that can reduce the value of a charitable deduction by 3% for some higher income taxpayers have also been suspended.    

            The suspensions are valid from August 28, 2005 to December 31, 2005

            The recipient organization must be a qualified 501 (c) 3 and not a private foundation, type III supporting organization or donor-advised fund.

            Your gifts do NOT have to be to an organization associated with Hurricane Katrina relief.

            Gifts from partnerships or s-corporations are considered as gifts from the partner or shareholder.

             Some advisors are recommending the use of IRA and other retirement plan funds, but be careful to consider other taxes or penalties that might apply.  In using special assets to fund these year-end gifts, be sure the sophisticated analysis is done by a qualified financial advisor.

While it is true that the tax relief represented by KETRA is likely to appeal primarily to the wealthier among us, the principal of tax incentives for giving makes the US government our giving partner. Take full advantage of tax-wise giving and give as generously as you can.  If not now, when? 

THIS COLUMN SHOULD NOT BE CONSTRUED AS LEGAL OR TAX ADVICE.  PLEASE CONSULT YOUR PERSONAL ADVISOR.

Enid Ablowitz is the author of  Making Money Matter:  Eight Steps to Thoughtful Giving.  For information on how to obtain a copy, contact her at enidablowitz@hotmail.com.