For individuals who are interested in charitable giving, this just
might be the year to increase your donations to the Oak Park-River
Forest Community Foundation or to the another charity of your
choice. But you need to make your donation right away!
Here’s why: The Katrina Emergency Tax Relief Act was
recently enacted by Congress. This Tax Relief Act of 2005 has a
number of charitable giving provisions that are important to
individuals and businesses. The act includes new incentives for
those who make charitable gifs to charities before the end of 2005,
regardless of whether the charity’s purpose is for hurricane relief.
Generally, contributions of cash are deductible in
amounts up to 50 percent of the donor’s adjustable gross income
(commonly referred to as AGI). Gifts of securities and some other
types of property that have increased in value have a deductible
limit of 30 percent of AGI.
For a short window of time, Congress has temporarily
suspended limits on cash deductions to qualified charities made
during the period beginning Aug. 28, 2005 and ending Dec. 31, 2005.
During this time, donors may deduct cash gifts to qualified
charities in amounts up to 100 percent of their AGI. Gifts of
appreciated securities remain deductible in amounts up to 30 percent
of your AGI and are not subject to the waiver of limitation.
Additionally, assets accumulated in an IRA, 401(k)
or 403(b) or other retirement account may present special
opportunities.
Assets that are held in retirement accounts are
subject to income tax when withdrawn during one’s lifetime or when
gifted as bequests to individuals other than a spouse. However, as a
result of this new act, for this short window of time—until the end
of 2005–some donors can make a gift of an IRA or similar retirement
plan and deduct the entire amount.
However, there are some caveats to consider.
Gifts to donor advised funds or to funds where the
donor (or any person designated by the donor) expects to have
advisory privileges are not eligible for this incentive. But a donor
may make a gift to a Community Foundation field of interest fund to
support the arts, seniors, scholarships; a designated fund where the
income will support a particular purpose or organization; or to an
unrestricted annual or endowment fund.
If you are over 59˝, assets can be withdrawn from a
retirement account and donated to a qualified charity without
payment of the 10-percent penalty for early withdrawal. Charitable
gifts contributed this way are reported as income and are then
deductible as charitable contributions on your income tax return.
Withdrawing money from your IRA increases your
income and the minimum requirement for your other itemized
deductions.
For instance a donor has $100,000 gross income and
$20,000 of itemized deductions. Her taxable income is $80,000
(oversimplified). She withdraws $1 million from her IRA and gives it
to charity. Now her itemized deductions are $1,020,000, but her
income increased to $1,100,000. She is supposed to reduce her
itemized deductions by 3 percent of the extra million ... $30,000.
She received a charitable deduction of the full $1 million for the
gift but loses the other $20,000 of itemized deductions because her
income went up from the IRA withdrawal.
There are also tax consequences for people with
incomes over $146,000.
An Illinois donor with an income greater than
$146,000 who withdraws money from a retirement plan and gifts it to
a charity will pay federal tax of 1 percent on the withdrawal. But
since Illinois has a special law that all withdrawals from
retirement accounts are exempt from Illinois state income tax, there
would be no problem on an Illinois tax return to withdraw funds and
give it to charity.
Should you decide to use assets from your IRA or
retirement plan to establish a designated, field of interest fund or
make a contribution to the Community Foundation’s annual or
endowment fund, please call our office 848-1560 for information.
On a more personal note, on Nov. 15 I will leave the
Oak Park-River Forest community to start a new job with the Lubeznik
Center for the Arts. Before I leave, I want to thank this community
for the generous support of the Oak Park-River Forest Community
Foundation over the past 11 years. It has been an exciting time to
be a part of this organization and the future holds great promise
for even better times. Thank you, Oak Park and River Forest, for
working with me to help strengthen our community through
philanthropy.
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Copyright 2005, Wednesday Journal, Inc.,
141 S. Oak Park Ave., Oak Park, IL 60302, 708/524-8300