Donate (or text message) now and claim a deduction on your 2009 tax return.
The first bill, passed unanimously by the House today, will allow American taxpayers (both individuals and corporations who file their returns on a calendar year) to deduct Haiti relief donations made through the end of February on their 2009 federal income tax returns. Typically, you would deduct donations made in 2010 on a 2010 return, and wouldn’t see the effect of a charitable deduction until filing a 2010 return in the spring of 2011.The Senate expects to introduce an identical bill on Wednesday, and could move it immediately by unanimous consent.
House Ways and Mean Committee Chairman Rep. Charles Rangel, D-N.Y., said the bill would provide for “immediate benefit for those who have already given and an incentive for those who are considering giving.” But the truth is the break only helps you if you’re in one of the 37% of households– primarily middle- and upper-income homeowners–who itemize their deductions, instead of taking the standard deduction. If you’re on the cusp of where itemizing might make sense, one savvy tax move is to bunch donations into one year so that you’ll be able to itemize in one of the two years. (You can save the Haiti receipts for your 2010 returns if that’s the year you’re itemizing.) For more advice on how to be a tax-smart charitable giver, click here.
Congress enacted similar accelerated deductions for folks who donated to victims of the Indian Ocean tsunami that struck Thailand and Indonesia in December 2004. Donors were able to deduct January 2005 donations on their 2004 returns.
The cellphone substantiation provision was needed because the Internal Revenue Service has strict, congressionally ordered rules requiring proof you made a donation if you want to take it as a tax deduction. Typically you need a receipt or written acknowledgment for everything, including $10 put in the collection plate on Sunday, An estimated $25 million in text message donations have already come through to the American Red Cross (text “HAITI” to “90999” for a $10 donation; up to three times to donate $30).
Important gotcha: You need your receipt in hand before you file your taxes. If you don’t want to wait for your phone bill, you can get receipts for text gifts made to the American Red Cross, the United Nations Foundation, United Way, and select other charities through www.mgive.org/receipt. You enter your mobile number, a PIN number will be sent via text to your phone, and you then enter the pin on the Web site to see confirmation of all donations you have made via that phone number. You can print out the receipt for your records and use it as the official donation receipt for tax purposes.
Meanwhile, a second bill, expected to be introduced Wednesday in the Senate by Sens. Charles Schumer, D-N.Y., and Kirsten Gillibrand, D-N.Y., would exempt 2010 cash donations designated for Haiti relief efforts from certain individual and corporate deduction limits. Under current law individuals can deduct cash contributions worth up to 50% of their adjusted gross income and gifts of appreciated property (such as stock) worth up to 30% of their AGI. If they donate more than that, they must carry forward the deductions to future years. Corporations can deduct up to 10% of their adjusted taxable income for either cash or in-kind donations.
That proposal is similar to tax relief provided to spur donations after Hurricane Katrina struck in August 2005. Then the 50% limits for individuals and the 10% limit for corporations were both lifted, but only for cash contributions. In that case, however, contributions were not limited to hurricane relief–a provision which raised the cost to Uncle Sam. In the new bill, the lifting of the limit would be restricted to Haiti relief.
Earlier on Wednesday the Business Roundtable’s Partnership for Disaster Response, representing 161 of the nation’s largest corporations, said its members had already contributed $30 million, but much of that has been in (presumably much-needed) in-kind donations. For example, PepsiCo ( PEP – news – people ) and Coca-Cola ( KO – news – people ) have been donating food and bottled water and Procter & Gamble ( PG – news – people ) has donated water purifier packets. Wal-Mart ( WMT – news – people ) has sent pre-packaged food kits valued at $100,000 while Abbott Laboratories ( ABT – news – people ) has been sending pharmaceutical and nutritional products.
The proposed Senate bill also includes an extension of a special rule for corporate contributions of food inventory. That rule allows corporations that donate food to deduct the actual market value, rather than the cost to produce the food. This is one of 50 tax breaks that expired at the end of 2009 when Congress couldn’t agree on an “extenders” bill. Those provisions are generally expected to be renewed at some point.
The food inventory break was originally enacted as part of the legislative response to Katrina, but donations of food inventories did not have to be targeted specifically for hurricane relief efforts in order to be eligible for the enhanced deduction