New charitable giving law has tax advantages

Editor,

It's a very well known fact that the majority of individuals make charitable gifts to support their favorite cause. The tax benefits, however, can sometimes be a motivator for giving. Therefore, I want everyone to know about a new law that the president has signed in reference to charitable giving.

There are great tax advantages as part of a Hurricane Katrina tax package designed to encourage giving. All gifts to charity are eligible for this incentive, not just contributions to disaster relief organizations.

Please note that this opportunity only exists for "cash" donations from Aug. 28, 2005, through Dec. 31, 2005.

The most important provision for many charities is the elimination of the 50 percent adjusted gross income limitation on charitable deductions by individuals.

Under current law, individuals may deduct charitable donations in a year up to 50 percent of their adjusted annual gross income. Deductions for charitable donations are further limited by the phase-out of itemized deductions. Under the proposal, cash donations to charities are exempt from the 50-percent income limitation and the phase-out of itemized deductions if the donations are made before January 2006.

This provision creates a strong incentive to give larger gifts, especially from retirement funds such as IRAs, 401(k) and other retirement plans. For example, under current law, if a taxpayer with $50,000 in income and $100,000 in a retirement fund wanted to contribute the money in his retirement fund to charity, the most he could deduct is $75,000 (that is, 50 percent of $150,000, his adjusted gross income for the year).

Under the provision in the tax relief package, that donor could take a deduction for the full amount of the gift, or $100,000. In fact, to take an extreme example, if he wanted to contribute all of his income to charity, he would take a deduction for the full amount, or $150,000. However, penalties for early withdrawal are still applicable.

Paula M. Gillette, Executive Director

St. Luke Community Healthcare Foundation