The devastating natural disasters — Hurricane Katrina and the Indian Ocean Tsunami - have created an abundance of first-time donors for non-profit organizations, but with income tax season only a month away, these charitable Americans now need to think about the tax implications of their generosity.
Some of these donors may be novices when it comes to charitable giving and unaware of the tax laws surrounding such gifts. Even those with a history of charitable activity may find it hard to keep up with the frequent tax law changes that take place.
My firm, which helps non-profits raise money and helps their high-net worth donors understand the tax implications of their gifts, will be alerting individuals to the following:
Just because a group has “tax exempt” status doesn’t mean donations are tax deductible. To make sure you can write off a donation, check with your local IRS office or www.irs.gov.
If you are donating an item or collection valued at more than $5,000, you must submit a qualified appraisal verifying that it is worth the amount you claim.
Business owners may only deduct the amount spent on tools and equipment donated to a charity. Hours of service that business owners or employees may devote to a charity are not deductible.
Non-profit organizations must keep all non-monetary gifts (coin collections, stamp collections, real estate, art—paintings, sculptures, antiques) for two years or the amount of the donor’s deduction will be reduced to its cost basis.
There are new rules for 2005 car donations. Charitable deductions for gifts of cars are no longer based on the fair market value of the car claimed by the donor. For gifts made after January 1, 2005, of more than $500 in value, the donor must submit with their Form 1040 proof of how much the non-profit got from the sale of the car. The non-profit must provide the price the vehicle brought within 30 days of the sale, and the donor must include that document with their tax form. For gifts of cars below $500, the donor still has to have the proof of the sale price, but they don’t have to submit it with their taxes. This confusion is dangerous because car donations are an enforcement priority for the IRS this year.
There are a number of other areas donors should be familiar with as well:
For gifts that don’t qualify for charitable deductions, gift taxes may apply.
This year, taxpayers can gift up to $12,000 per person, up from $11,000.
The estate of a deceased that is now tax free is $2M – up from $1.5M.
— Tony Martignetti is the Managing Director of Martignetti Planned Giving Advisors located in Forest Hills. As Director of Planned Giving at St. John’s, he raised $20 million dollars in five years.
