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Special 2005 Opportunity to
Help with Hurricane Relief
Without Reducing Regular Charitable
Support
The plight of
the people of the Gulf Coast
touched the hearts of all Americans
after the devastation of Hurricane Katrina, and
many are extending a helping hand —
both literally and figuratively— to the victims
of this disaster.
Thanks to
special legislation,
taxpayers will not have to choose between
doing their part for hurricane relief and
their regular support of favorite charitable
organizations.
While, under
existing law, the maximum amount
of cash contributions deductible in
any one year is 50% of adjusted gross income,
that limit is being increased to 100%
of adjusted gross income in the case of
certain cash gifts made during the stipulated
period.
Example: A
taxpayer whose adjusted gross income
for 2005 is $250,000 has already made charitable
contributions of $50,000 prior to August
28. The taxpayer can make additional deductible
charitable contributions of up to $200,000
in 2005. This would reduce her income-tax
liability to zero.
Highlights
• Individual
contributions—unrestricted orrestricted—may be made to any
qualified public charity whether
or not the charity is engaged in Katrina
relief.
•
Gifts must be outright gifts of cash made between
August 28 and December 31, 2005.
•
Cash gifts will not be subject to the tax reduction
rule that reduces itemized deductions by 3%
of the amount by which adjusted gross income
exceeds $145,950.
• A
contribution to a private foundation, a
supporting organization, or a donor advised
fund would not qualify for the higher
limit.
•
Corporate deductions (normally limited to 10%
of taxable income) are deductible up to 100%
if gifts are made to Katrina relief during
the allowed time period.
2005 Gift Opportunities with IRAs
and Qualified
Retirement Plans.
Because
of the increase in the deduction limit,
taxpayers over the age 591/2 have a special
opportunity for the rest of 2005 to withdraw
funds from their qualified retirement plans
and IRAs and make additional contributions to
charity. Such withdrawals will be added to
adjusted gross income and will be fully
deductible, thereby eliminating
any tax on the withdrawal.
Clearly
this plan would appeal only to those who
have sufficient assets to meet their personal
needs.
This plan is not without potential pitfalls.
The
increase in adjusted gross income— because
of the withdrawals—could adversely affect
the available deduction for medical and casualty
losses and for personal exemptions.
And
while the charitable deduction for the
contributed withdrawals is not subject to the
3% reduction rule for itemized deductions,
the increase in adjusted gross income could
result in the reduction of other itemized
deductions and personal exemptions.
Donors should
consult their tax advisors about both
the optimum amount to contribute in 2005 and
the advisability of making such contributions.
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