Thursday, October 20, 2005

Katrina (and other disasters) Tax Relief Act - You can be Generous with Charitable Gifts

Category: Tax Law and Planning

In order to help charities assisting in the Hurricane Katrina relief, Congress recently passed the Katrina Emergency Tax Relief Act (KETRA) which allows unlimited gifts to charity up to a donor's total income until the end of 2005. Normally, there are percentage of income limitations on charitable deductions.

KETRA Qualifying cash gifts must be made between August 28, 2005 and December 31, 2005 to a public charity. For individuals, the contribution does not have to be earmarked for Hurricane Relief.

If you are over 59 1/2 and considering making a large charitable contribution this year, consider withdrawing money from and IRA, 401(k), 403(b), or other qualified retirement account, to make the gift. Generally, withdrawals from qualified retirement accounts are subject to income tax in the year made. Under the normal tax code, the charitable contribution deduction to a public charity is limited to 50% of your income. Accordingly, when you make a withdrawal from a qualified plan and donate the entire amount to charity under the normal rules, you must pay tax on 50% of the withdrawn amount, even though 100% went to charity. Under KETRA, 100% of a qualified plan withdrawal that passes to charted may be deducted.

For more information on Katrina tax relief, see the IRS website.

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