SPECIAL TAX
DEDUCTION FOR TSUNAMI DONATIONS
Americans are opening their
wallets and pocketbooks in record numbers to help
the victims of the devastating tsunami in
southern Asia and parts of Africa. Since
the tsunami hit on December 26th,
millions of Americans have contributed money to
relief organizations. Donations are
expected to rival the $1 billion raised after
9-11. If you’ve already made a
donation or plan to make a donation, here are a
few tips about deducting your contribution and
making sure your donation gets to the people who
need help the most.
Unprecedented
disaster
The scale of the disaster
is difficult for most people to comprehend.
According to USAID, the federal government agency
responsible for economic and humanitarian
assistance around the world, more than 160,000
people were killed in the disaster and more than
one million have lost their homes. Many
tens of thousands of children died in the
disaster. Fortunately, relief is
pouring-into the affected areas from around the
world. Relief organizations are channeling
donations to the hardest hit areas.
Special
tax treatment
To encourage donations,
Congress recently passed a special law making
tsunami donations tax deductible in 2004 even if
they are made in January of this year.
Typically, if you file an itemized return and
want to deduct your charitable contributions, you
can only deduct the contributions you made in
that tax year. The tsunami hit on December
26, 2004. Under the normal rules, you would
have had to make a contribution by December 31,
2004 to deduct it on your 2004 tax return.
The new law gives you until the end of January to
make a tax-deductible tsunami contribution for
2004. The new law applies only to tsunami
donations and only to monetary contributions.
You don’t have to deduct your
January contribution on your 2004 return if you
don’t want to. You can wait and deduct
it on your 2005 return. Of course, to
deduct a charitable contribution of any sort, you
must opt to itemize rather than take the standard
deduction. If you are taking the standard
deduction for 2004, your January contributions
automatically will be considered made for the
2005 tax year.
To be deductible, you generally
must make your donation to a U.S. charity.
There are some limited exceptions for foreign
charities. If you have a specific charity
in mind, you should make sure that the charity is
qualified to receive tax-deductible
contributions. Of course, most people
don’t make donations just to get a tax
deduction. Donations to almost all of
America’s largest and best-known charities
are tax-deductible.
To be entitled to a 2004
deduction, your January contribution must be
specifically designated for tsunami relief.
All the regular rules also must be followed: a
receipt from the charity must be produced that
stated you received nothing of value in return
(or, if you did, such as a dinner at a
fundraiser, the amount must be stated); pledges
don’t count as contributions, but charges to
a credit card are considered donations on the
date the card is credited; and checks received by
the charity by January 31st will be
considered paid in January as long as they are
duly paid by your bank when presented.
There are also special rules for
donating supplies, such as medicines and
equipment. Currently, most charities are
requesting cash donations to help the tsunami
victims. They use the money to purchase
relief items near the disaster areas. If
you want to make a non-cash contribution, make
sure the charity will accept it.
You’ll also want to give our office a call
and we can explain the appropriate tax
treatment. Noncash donations do not receive
the January grace period for 2004 contribution
deductions.
Watch
out for scams
Unfortunately, the
disaster has encouraged scam artists and
criminals to take advantage of Americans’
generosity. The Federal Trade Commission
and the FBI both recently warned of tsunami
scams. Within days of the calamity, con
artists started making telephone calls and
sending emails soliciting money for bogus relief
programs. Many of these emails are from
organizations with names that mimic legitimate
relief organizations. Some purport to be
from countries affected by the tsunami and
include photos or videos of the
devastation. Other con artists have even
gone so far as to create bogus relief web sites.
The Federal Trade Commission has
some tips to avoid being taken by these scams.
Always ask for the name of
the charity if the solicitor doesn’t
provide it promptly.
Ask what percentage of
your donation will support tsunami
relief.
Verify that the charity
has authorized the solicitation.
Never give out any
personal financial information to anyone
who solicits a contribution. This
includes your Social Security, credit
card and bank account numbers.
Ask for a receipt showing
the amount of your contribution and
stating that it is tax-deductible.
Do not give cash in the
form of currency. For security and
tax record purposes, it is best to pay by
check, made payable to the charity and
never to the solicitor.
If approached in person,
ask for identification. Many states
require fundraisers to identify
themselves and to name the charity for
which they are soliciting.
Again, if you have any
questions about a charity or the tax treatment of
your donation, please give us a call.
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