Everyone who itemizes their deductions should be aware of changes to the charitable tax deduction rules included in the Pension Protection Act of 2006. I have long thought of charitable giving as one of the last remaining write-offs my clients could count on. It's still a good deduction, but you must have documentation (discussed below) to support donations made via paper money or coin, and you will have to work harder to document other charitable contributions, as well.
The following details are abbreviated from a 2006 National Association of Tax Professionals (NATP) press release. The bulk of the changes can be summed up in a single word: receipts.
Changes regarding cash/monetary contributions (effective 8/17/06)
- You must have a bank record, a receipt, or written communication from the charity or non-profit showing the organization name, date of the contribution, and amount for all contributions of money, regardless of the amount.
Note: Looks like your canceled check is valid proof for donations under $250. Prior law still requires a written acknowledgement for contributions of $250 or more, however. The real pain is that now you must have written acknowledgement for all cash donations, big or small. There goes my deduction for the $5 I gave to the neighor kid for his school walk-a-thon!
Changes regarding noncash contributions (effective 8/17/06)
- You may only donate clothing or household items in good used condition, or better. (Exception for single items of more than $500 value that include a qualified appraisal.)
- The IRS may deny deductions for items of minimal monetary value, such as used socks and undergarments.
Changes regarding food donations (effective 1/1/06)
- Food must be "wholesome" -- intended for human consumption and meeting government quality and labeling standards.
- You must obtain an itemized receipt containing the same information as those needed for cash/monetary contributions mentioned previously.
The changes affect everyone who contributes to charitable organizations at any level. "Church-goers who used to put cash in the collection plate each week must now either write a check or take advantage of the church's envelope system," remarks Jersey City, NJ, NATP tax professional, Robert D. Flach, author of the blog, THE WANDERING TAX PRO.
Sam Grubbs, an enrolled agent and NATP member in Columbus, GA, adds, “Unfortunately, this may negatively impact collections such as the MDA drive over Labor Day weekend by the firefighters. Will you ask the firefighter for a receipt when you drop a dollar in the boot?"
My two cents: "Don't expect to deduct donations to a holiday canned food drive this year, but please give anyway!"
Last updated: 17 October 2006