Saturday, December 16, 2006

IRS rules for 2007 limit recognition of some donations

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As a year-end tax reminder the U.S. Internal Revenue Service is reminding taxpayers that beginning for tax year 2007, that the rules for deductibility of charitable donations has changed slightly.

In the past, if you made donations to a charitable organization (such as a church) in cash of less than $250 your record keeping requirements were simple, and could include a diary entry or other notation showing the amount you contributed (such as a day-timer entry each Sunday saying "$20 - MyFaithWorship").

Under the new rules, the written record must be independent of the taxpayer -- that is, it must be something such as a cancelled check, credit card statement showing a transfer of funds, or a written record from the charity that acknowledges the donation, its date and value.

From the instructions for Schedules "A" & "B" for the 2006 tax year:
"...What's New For 2007
New recordkeeping requirements for contributions of money.
For charitable contributions of money, regardless of the amount, you must maintain as a record of the contribution a bank record (such as a cancelled check)or a writtten recoird from the charity. The written record must include the name of the charity, date and amount of the contribution... "
This means, however, that those who typically make small contributions in cash (as in "taking a $20 bill out of my wallet") are generally going to be S.O.L on deductibility in many cases, because it is certainly not common practice for the ushers with the collection plate to have a receipt book with them.

Thus, the individual who pulled that same $20 out of their wallet each Sunday could report the aggregate cash contributions of $1,020 (the individual contributions, being less than $250, do not require special reporting), as long as there was that diary notation to back it up.

However, according to the new rules for the 2007 tax year, you had better make that contribution out of your checking account, or else you will not be allowed to deduct it.

Do I have an opinion on this?

Of course I do.

This appears, to me, just a continuation of the nickle-and-dime attack on the small-to-medium taxpayer that is being used to recover the tax revenue lost by the cuts to the taxes of those with big revenues.

Consider, does the small taxpayer benefit when the Alternative Minimum Tax structures are not updated to factor in wage inflation (and certainly not factor in buying power compression)?

Or the general prohibition on the individual taxpayer's ability to deduct most kinds of interest paid on debt (and with credit APRs routinely running from 20% to 25%)?

Or the absurdity of a minimum floor on deductibility of medical expenses?

Do these tax law provisions affect those with large annual revenue to the same extent as those who have a lot less in their take-home pay?

Of course not. And to try to claim that these give-aways for big taxpayers (who wind up shelling out a much smaller proportionate share of their annual income) are somehow of "benefit" to the smaller wage-earner is simply preposterous.

"2006 Instructions for Schedules A & B (Form 1040)"
"Recent Tax Law Changes May Affect People Giving to Charity: IRS Offers Tips for Year-End Donations"
"Publication 526 - Charitable Contributions"