House Passes $31 Billion Tax Extenders Bill
On December 9, 2009, the House of Representatives passed the Tax Extenders Act of 2009. The $31 billion bill will extend over 40 tax provisions from 2009 to the end of 2010.
Major tax provisions include extension of the research and development credit, the teachers’ supplies deduction and seven charitable provisions.
Investment fund managers currently operate as partners and generally pay income tax at the 15% capital gain rate rather than the 35% ordinary rate. Under the bill, the employee of a partnership will pay tax at ordinary rates for services that he or she provides.
There are seven charitable provisions in the extenders bill. These are as follows:
- IRA Charitable Rollover — Distributions will be permitted up to $100,000 per year for IRA owners directly from the IRA to charity.
- Food Inventory Gifts — Businesses may give food inventory to charity and receive an enhanced deduction for gifts of apparently wholesome food.
- Computer Equipment — Corporations may receive an enhanced deduction for gifts of computers to educational organizations.
- Book Inventory — Corporations may receive enhanced deductions for gifts of books to elementary and secondary schools.
- Subchapter S Corporations — A Subchapter S corporation may gift appreciated property and the shareholder benefits from the full deduction.
- Conservation Property — Gifts of conservation property qualify for expanded deductions and longer carry-forwards.
- Rent Payments to Parent Charities — Fair value rent payments by subsidiaries will not be unrelated taxable income to the parent charity.
Editor’s Note: This list of tax extenders is nearly certain to be passed by both House and Senate. However, because the Senate has in the past objected to these revenue-raising provisions, it may be 2010 before the final extenders bill is passed.
Ten IRS Tax Tips on Year-End Gifts
In a letter published on December 8, 2009, the IRS provided “tax tips on end-of-year donations.” These include the following tips:
- IRA Charitable Rollover — While the required minimum distribution for 2009 has been waived, it still is permissible for an IRA owner to transfer up to $100,000 directly to a qualified charity.
- Clothing and Household Items — Gifts of clothing or household items in “good used condition or better” will qualify for a deduction. If the value is over $500, a donor may obtain a qualified appraisal.
- Cash Gifts — Gifts of money now require a bank record or written acknowledgement from the charity. The record must show the name of the charity, the date and the amount of the contribution. Credit card payments are also deductible and should show the name of the charity, the date of the gift and the date the transaction posted. For payroll deductions, a taxpayer should retain a pay stub or a Form W-2.
- When Deductible — Donations are deductible when made. Checks mailed by December 31, 2009 that clear the bank are deductible in 2009.
- Qualified Charity — Not all charities are qualified to receive deductible gifts. On www.IRS.gov, a donor can search for qualified charities in Publication 78 and determine whether a gift qualifies for a deduction. However, gifts to a church, synagogue, temple or mosque qualify even if the charity is not listed in Publication 78.
- Itemized Deductions — If a taxpayer takes the standard deduction, there will be no added benefit from charitable gifts. In order to receive an additional charitable gift deduction, the taxpayer must itemize deductions.
- Property Gift Records — For gifts of clothing, household items or other property, the charity should give a receipt with the name of the charity, date of the gift and a reasonable description of the property.
- Car, Boat or RV Gifts — For vehicle gifts worth over $500 that are sold by the charity, the deduction is limited to the gross proceeds from the sale. The charity will provide IRS Form 1098-C to the donor. It must then be attached to the donor’s tax return.
- Non-Cash Gifts Over $500 — If a donor makes non-cash gifts over $500, then IRS Form 8283 must be attached to the tax return.
- Gifts of $250 or More — If a gift of property is valued at $250 or more, then the charity must provide a receipt to the donor. The donor must have the receipt when he or she files IRS Form 1040.
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