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Assets that are held in retirement accounts are subject to income tax when withdrawn during one's lifetime or when gifted as bequests to individuals other than a spouse.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?#34;until the end of 2005?#34;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If you are over 59½, assets can be withdrawn from a retirement account and donated to a qualified charity without payment of the 10-percent penalty for early withdrawal.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 strenghten our community through philanthropy.