Making a holiday gift list and checking it twice? One of the people you may want to check with is your accountant. That’s because year end is often a good time to consider how giving can affect your tax return. In addition, the Katrina Emergency Tax Relief Act of 2005 included changes with regard to charitable contributions that may benefit you.
Here’s an overview of some of the rules relating to gifts you make to charities.
- Donations you make to organizations qualified to receive them are generally tax deductible. Qualified organizations can include, among others, war veteran’s posts, religious institutions, and associations such as those working to prevent cruelty to animals. If you’re in doubt about a charity’s status, check IRS Publication 78, or request proof from the charity.
Note: Charitable contributions are an itemized deduction. That means you’ll get no benefit on your tax return if you use the standard deduction. In some cases, even if you itemize, your deduction may be limited. Special rules apply in this situation for donations made after August 28, 2005.
- To deduct contributions in excess of $250, you’ll need a written acknowledgment from the charity.
- Gifts to individuals, even to someone who needs assistance, are generally not deductible, except in special situations relating to sponsored students.Note: For 2005, if you offered shelter to a Katrina victim in your home, you may be eligible for a special tax break outside of the charitable contribution rules.
- Donations of your time or services are not deductible. But keep track of the miles you drive while performing services, because those are considered contributions.
Note: For 2005, the standard rate is $0.14 per mile. Mileage directly related to Hurricane Katrina is eligible for a higher rate ($0.29 from August 25, 2005 through August 31, 2005, and $0.34 from August 31, 2005 through December 31, 2005).
- To claim a charitable deduction on your 2005 tax return, you’ll need to make the deduction before the end of December, either in cash or by credit card.
This list is necessarily brief and general in nature, and there may be other rules pertaining to charitable contributions that can affect you. Additionally, as is usual when dealing with tax law, exceptions and special circumstances abound. Consult your tax advisor for advice pertaining to your situation.