With a unique tax break for donors to universities and other charities expiring at the end of 2007, Brenau University’s top charitable giving official urged eligible prospective contributors to take advantage of the provision before Dec. 31.

James M. Barco, vice president for institutional advancement at the university, said a portion of the Pension Protection Act of 2006 enables individuals who are at least 70½ years old to donate up to $100,000 from individual retirement accounts without accruing any tax liabilities or penalties. However, since Congress has not extended the provision, a “sunset” clause takes effect at the end of the year and the break disappears.
 
“This is the time of the year when people are giving thanks and counting their blessings and want to do something to help out their favorite charities or not-for-profit institutions,” said Barco. “They also need to make certain that their generosity does not cost them extra money in unforeseen taxes.” 

Many older Americans, having assessed their actual retirement needs versus available resources, find that tapping into IRAs for their charitable giving dollars makes good sense for them. Congress made it a more attractive option with the temporary measure in the Pension Protection Act.  

Such contributions must be made to an organization or institution that is registered with the Internal Revenue Service as a 501(c) 3 charity. Contributions must be an outright gift to the organizations or institution and cannot be part of a planned giving program, a trust or a donor-advised fund.  

“You can’t claim a deduction on IRA money because you have set it aside from earlier income without paying any tax on it,” said Barco, “but if you make a withdrawal from an IRA before the end of 2007 for the express purpose of making a contribution, you still don’t have to pay taxes on it.” 

After Jan. 1 donors may still give monies they take from IRAs to universities and other charities, but withdrawals for those purposes are like any other withdrawal: they’re treated as income for the year in which you make a withdrawal. When you file your tax returns for that year, you can claim a deduction for the amount you donate to charity (up to 50 percent of your adjusted gross income), but that probably will not be enough to offset your tax liability, Barco said.  

Barco said there are other giving scenarios with possible adverse tax consequences for donors. For example, some donors make the mistake of selling stock so they can make cash contributions to colleges or other organizations. The result is they have to pay a tax on the sale of the stock that may not be offset by tax deductions for their contribution.

“If they transfer the shares of stock outright to their favored charity,” Barco said, “they will owe no tax – and they can deduct the full fair market value for the shares, even though they may have actually paid much less for them.” For transfers of stock or other appreciable assets to charities, donors may deduct an amount equivalent to 30 percent of their adjusted gross income for the tax year. 

In any scenario, Barco said, Dec. 31 looms as an important deadline. Whether the donor takes charitable dollars from an IRA, donates stock or writes a check, transactions have to have happened prior to midnight Jan. 1 to affect the 2007 tax year.

“Not only should you make sure your check is dated in 2007, you also should make certain that the envelope you mail it in is postmarked before the end of the year,” said Barco. “The best rule of thumb is that, if you want a charitable contribution to count against your tax liability for the year, everything related to that transaction needs to be completed before the clock strikes 12 on New Year’s Eve.”