Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Pension act includes new rules for donations

- by Alan Duvall 

Published in Dayton Daily News   September 3, 2006 

I just received some light reading in the form of a new 1,400 page book entitled “Pension Protection Act of 2006” recently signed into law by President Bush.  Imbedded in the deep crevices of the Act are new rules governing charitable contributions.  Of course, when I see the title Pension Act - I instantly think charitable contributions.  Right.  

Cash donations will hereafter be deductible only if written documentation of date, amount and donee name is preserved.  Previously, the IRS had discretion to reject undocumented contributions – now thinking is unnecessary since disallowance is mandated.  

Future clothing and household goods donations are only deductible if in “good used condition or better”.  Although as yet undefined, presumably “good” is moored somewhere between rubbish and new. 

Deductible donations of items with “minimal monetary value” (such as old socks or undergarments) are likewise disallowed.  Exceptions are maintained for any singular item worth over $500 supplemented by a qualified appraisal. 

Apparently outdoors people were tax abusers since special rules were enacted to carve back donations of taxidermy-related trophies.  The barren walls of Moose and Elks lodges nationwide will undoubtedly suffer.

Prior tax acts had restricted tax benefits for contributed vehicles, boats and airplanes.  Deductions of such mobile goods, valued over $500, are limited to the ultimate proceeds derived by the charity upon the items’ subsequent arms-length sale to an unrelated party.   

Elderly taxpayers are potentially subject to a 60 percent income/estate tax on pension assets held at time of death.  Thus, they have a powerful incentive to name charities as death-time beneficiaries of such monies.  Unfortunately, tax benefits of lifetime pension gifts were limited since distributions were fully taxed and subsequent donations were subject to itemized deduction limits. 

Enter the new Act.  Hereafter, taxpayers over 70 1/2 years of age may lifetime-contribute otherwise taxable IRA monies to qualified charities.  An aggregate $100,000 so donated will not be taxed to the IRA owner thus alleviating need for a corresponding charitable deduction. 

The amendment benefits IRA owners who could not otherwise itemize deduct such contributions as well as owners who would suffer from Social Security taxation and itemized deduction limitations based upon income levels. 

This discussion encapsulates about 200 pages of the new Pension Act.  Only 1,200 more pages to...ZZZZZZ.  

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.