Free Money Finance commented on new rules regarding taking federal tax deductions for charitable gifts. Among the new rules:
- You can't write off junk. If it isn't in “good” condition, you may be disallowed the deduction.
- Stuff worth more than $500 needs an appraisal. The floor used to be $5,000.
- Proof of cash gifts is needed. I didn't think this was a new rule, but apparently it is.
- Bonus: $100k from an IRA to a charity is (for the moment) not taxed.
FMF contends he may be giving less as a result of these new rules. Which is a shame, because by all accounts he's a very generous guy (all profits from his PR6 blog go to charity last time I looked, and he matched thousands of dollars in donations to charities like this one that helped Katrina victims). At best, it's more recordkeeping and more hassle for him to donate. It doesn't make the mechanics of giving any more difficult — Uncle Sam is just saying “thanks” a little less often than he used to. (But saying “thanks” less often is better than not saying “thanks” at all!)
I don't know what political special sauce was rubbed into the tax code to result in these changes, but it's probably at least a combination of closing loopholes and cutting spending. At least it makes auditing clearer: No receipt? No deduction. No appraisal? No deduction. No legs on that chair? No deduction. It does let the government get more bank for its buck, as the charitable gifts it's giving the tax breaks on are more likely to be real and legitimate. And some folks will be not writing off as much for fear that the deduction they took on that donated broken alarm clock might not stand the test of time.
For myself, the rules don't affect me that much. We got records for all of our cash donations anyway, and anything we donate we usually don't bother with a receipt. (Much of it we got as gifts from people or got it for pennies on the dollar, so it makes even less sense to keep track.)
I also don't know how much this will affect charitable giving. Sure, the charities will probably get better stuff (or, at least less junk), but they'll likely get less in total donations. On the other hand, a good chunk of taxpayers don't itemize their deductions, so the tax changes don't affect them at all, and their giving habits will be unchanged by the new laws.
Reduced charitable giving has its own side effects. The need is still there even if giving goes down. How is that need met? By more state-sponsored welfare programs? Or do more folks have to do without? Will there be a lot more need resulting from this unserved need?
Anyway, the money flow to charities and to Uncle Sam has been changed a little. I guess we'll see how it affects the rest of the system, and what has to give.
Thoughts?
The new rules don't affect me either. I always have receipts for cash donation. As for goods, I try to document as much as I can, but I never take a deduction of more than $250 in a year, which I think is the limit before some serious documentation is required.
I always figure, even saving one hundred dollar on my tax from goods donation, does not worth the trouble of a potential IRS audit.
Just to clarify, the rules won't change my cash gifts (which is the majority). It just makes it a hassle if you're giving away any physical goods — like an almost new bed we just gave away.
That said, there's a comment that maybe the charity itself qualifies as an appraisal expert. If that's the case, there's little impact to me if any. I just need to sort out the details.
I don't think it'll affect me, because I always get receipts anyway. It's awfully hard anyway to figure out how much goods like clothes are worth, so maybe they're trying to cut down on people over-valuing those.
For my $250 deduction to Samaritan House, I have to write out EXACTLY what is given and they always ask if everything is good/great condition. This year they were more stingy than ever, saying that computers and monitors had to be less than 3 years old. Interesting post however doesnt affect me.
Does anybody know when the new rules go into affect? I personally just loaded up a ton of stuff (1st cleanout in 10 years) and we decided to give it away rather than hold a garage sale (crunched the numbers and the tax break was greater than the likely gains on a garage sale — and, giving to charity feels better than pocketing those few dollars). In any event, we felt fairly safe with the $5,000 floor — nothing we are giving is worth that much, but, I have so many books that I am donating and those are worth $5.00 – $10.00 per book. If I have 100 books (which I do) that's over $500.00. I'm planning on getting a receipt but how can I get an appraisal without spending money. My other option is to give them $500.00 worth of each kind of thing this year and the next $500.00 next year and so on until it's all gone. But I really want it out of the house. So, if the rules have a few weeks until they take effect or only apply to the 2007 tax year on, I'm good because I'll get rid of all of it now.
It surprises me that others don't normally take "goods" donations. I've only given goods and gotten a receipt once before, but the rules, until now, have been relatively generous — over $5,000.00 of same kind items needed an appraisal. It would seem that a lot of people, given such a high amount, would find it more financially worthwhile to donate goods than to sell them or just throw them out.
This is in response to Donna's question above.
The new tax rules regarding "good" quality clothing/household item donations took effect when the bill was signed into law by the president on Aug. 17. So everything donated on or after that date is subject to the new guidelines.
The prior rules on cash donations required a writing from the donee if it $250 or more per donation. Cash donations below that amount could be substantiated by a check or by a contemporaneous writing by the donor. In other words, if I put $20 cash in the offering plate at church, I could make a contemporaneous record and write off the $20. As of 1/1/07, I can no longer do that. Church ushers and Salvation Army bell ringers will apparently be required to carry receipt books so that parishioners/donors can get a receipt at that time. I don't see that happening which means that a lot of legitimate church and other cash donations will not get deducted, resulting in a windfall for the treasury and an increased reluctance to give to worthy causes.