On September 23rd of this year, President Bush signed the Katrina Emergency Tax Relief Act of 2005 (KETRA). This new law allows for special tax treatment to encourage charitable giving.
Cash donations to a qualifying [501(c)(3)] nonprofit organization between August 28 and December 31 of this year are 100% deductible against 2005 income. Except for certain corporate gifts, donations do not have to relate to hurricane relief. The provision also extends to corporations, partnerships, limited liability companies and S corporations, and covers cash donations from either taxable income or retirement plans.
Q: So does this mean any cash gift to Answers in Genesis is 100% tax deductible?
A: Yes, as long as the gift was received on or after August 28, 2005, and will be received on or before December 31, 2005.
The new legislation removes the 50% limitation on charitable giving and allows a taxpayer who itemizes his/her deductions to take 100% of the total charitable cash contributions donated between the dates above as a charitable tax deduction up to 100% of adjusted gross income.
Here’s an example of how that works:
- On January 1, 2005, Mr. John Smith donated $2,500 to Answers in Genesis. Mr. Smith’s adjusted gross income is $25,000. According to law, Mr. Smith can deduct the total of his charitable cash contributions up to $12,500 (or 50% of his adjusted gross income) from this federal tax return because he itemizes his deductions. In this example, Mr. Smith can deduct 100% of his donations in 2005, since this does not exceed 50% of his adjusted gross income.
- On December 31, 2005, John donates another $2,500 to AiG. According to the new legislation, John can take this cash contribution, as well as other contributions donated to 501(c) (3) organizations within the allowable dates, as a charitable tax deduction up to $25,000 (or 100% of his adjusted gross income). Gifts made prior between January 1, 2005 and August 27, 2005 are still subject to the 50% limitation. To the extent they exceed this limitation, they could be carried over to the next tax year, or up to five additional years.
Q: I own a company and want to make a charitable cash donation to AiG prior to December 31, 2005. Do my company’s charitable cash gifts also qualify?
A: Yes! If your partnership, limited liability company or S corporation donates to a charitable organization, such as Answers in Genesis, during the qualifying time period, the gift is considered to be from the individual, hence the above applies.
Corporate charitable deductions are generally limited to 10% of the corporation’s taxable income. During this special time period, however, regular “C” corporations qualify for similar tax incentives up to 100% of the corporation’s taxable income, but the corporate gifts must be designated for Katrina victims.
Q: If I donated to several organizations, including Answers in Genesis, do they all apply?
A: Yes, if all the organizations qualify as charitable (AiG does), you may deduct 100% of your charitable donations made during the qualifying time period, up to 100% of your adjusted gross annual income. This may include the entire amount of your donations to exclusively charitable organizations, such as the American Red Cross. You may count donations to AiG’s Katrina Relief Fund and donations to other Answers in Genesis operations, such as the Creation Museum.
Q: If I donate food, clothing, or other non-cash items, such as stock or real estate, do I also qualify for the waiver?
A: No, unfortunately, this window of opportunity to deduct up to 100% of 2005 income applies primarily to cash gifts. Perishable and durable items such as food and clothing, and non-cash financial assets such as real estate and stock are excluded. The one exception is gifts of inventory, which are deductible at basis plus 50% of the profit in the donated items.
Q: Can I withdraw from my retirement savings to participate in this program?
A: Yes! The special provision for 100% deduction this year for cash gifts provides an opportunity for tax free current gifts from individual retirement accounts, Keogh plans, 403b plans, 401(k) plans, and other qualified retirement or deferred contribution plans. Donors who are 59 and ½ can withdraw cash from their qualified retirement plans and get a 100% offsetting charitable contribution deduction for a cash gift to Answers in Genesis. It is possible for a donor to make a tax free cash withdrawal from his or her qualified plan and transfer the cash to Answers in Genesis.
Caution: Donors should consult their tax advisors on the overall tax effect of a withdrawal from their qualified plan or any other strategy that increases their adjusted gross income. It is possible to reduce the value of other itemized deductions.
AiG is not a tax-advisory organization, and strongly encourages you to consult your tax advisor or accountant for further details. We remind you that careful planning is essential to any tax-adjustment program. For more detailed information, see the RIA Special Study (PDF) concerning KETRA.
Q: What did AiG do to help victims of Hurricane Katrina?
A: This story illustrates how AiG has helped the victims of Hurricane Katrina, not only physically, but spiritually.
Q. How can I give?
A. There are several ways you can give!
- You may donate online
- You may call our Customer Service Department at 1-800-778-3390
- You may mail a check to us at: Answers in Genesis, P.O. Box 510, Hebron, KY, 41048