A few days ago, I posted that the House approved the Haiti Relief Bill.  On Thursday, the bill was unanimously approved by the Senate and was signed by President Obama on Friday.

In short, the bill makes most charitable contributions for Haiti Relief to be deducted on qualifying taxpayers 2009 tax return, instead of requiring that they wait until they file their 2010 return in order to obtain the tax benefit.

From the Joint Committee on Taxation Technical Explanation:

The provision permits taxpayers to treat charitable contributions of cash made after January 11, 2010, and before March 1, 2010, as contributions made on December 31, 2009, if such contributions were for the purpose of providing relief to victims in areas affected by the earthquake in Haiti that occurred on January 12, 2010. Thus, the effect of the provision is to give calendar-year taxpayers who make Haitian earthquake-related charitable contributions of cash after January 11, 2010, and before March 1, 2010, the opportunity to accelerate their tax benefit. Under the provision, such taxpayers may realize the tax benefit of such contributions by taking a deduction on their 2009 tax return.

The provision also clarifies the recordkeeping requirement for monetary contributions eligible for the accelerated income tax benefits described above. With respect to such contributions, a telephone bill will also satisfy the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution, and the amount of the contribution. Thus, for example, in the case of a charitable contribution made by text message and chargeable to a telephone or wireless account, a bill from the telecommunications company containing the relevant information will satisfy the recordkeeping requirement.

One thing to note on this bill is that in an extremely rare act of bipartisanship, the bill was passed unanimously in the House and the Senate.  I think that Joe Kristan from the Roth & Company’s Tax Update Blog put it best in Haiti Earthquake Rattles the Tax Law:

“As bad as Haiti is, it’s not the first disaster ever, and one more change to the tax law isn’t going to solve that sad country’s problems. Of course, the proposed changes are more about politicians making a show of concern than actually accomplishing anything.”

The law is going to do very little, if anything, to help the people in Haiti.  I doubt to many people are going to read this and say, “Gee, I wasn’t really going to donate, but since I can deduct it off my taxes for 2009 instead of 2010, here’s a check.”  As Joe put it, it is a “feel good” thing that the politicians are going to make it look like they care.

The House of Representatives voted unanimously to approve a bill that will allow taxpayers to claim charitable donations made related to Haiti relief efforts on their 2009 tax returns rather than waiting until they filed their 2010 returns to claim the deduction.    It also allows taxpayers who sent their donation in via text message to use their phone bill as proof of the contribution.  

These deductions are considered an itemized charitable deduction just as any other charitable deduction is.  It will not be treated differently other than the year that you are allowed to deduct it.

I have not seen details of the actual bill yet, but it is supposed to apply to contributions made between January 12, 2010 and February 28, 2010. 

Keep in mind that this is not a requirement to claim the contribution in 2009.  It is only an option.  Be sure to assess your individual tax situation or discuss with your tax planner to make sure it will not work out better to claim your deduction in 2010.

The Senate has promised that they will pass the bill swiftly as well, and it is expected that President Obama will sign the legislation into law quickly.

With the pilanthropic season ahead of us, I thought it might be a wise idea to explain what a qualified charitable organization is – at least according to tax law. 

Donations to qualified charitable organizations are typically deductible on individual income tax return, but what is a qualified charitable organization?  Many times, people will think that donations can be deducted when they can not.    An example that I usually bring up to explain this is related to a local homeowner’s association in the area.  At least once a year, they send out a flyer that promotes a neighborhood get together (aka “party”).  In the flyer they specifically state that they need donations for the keg fund and to remember that “these are tax deductible.”  I hate to burst their bubble, but they are not tax deductible for a host of reasons.  Primarily because the donations are not made to a qualified charity.    The homeowner’s association is a tax-exempt organization (aka “non-profit”), but it does not have a charitable purpose. 

 To know which contributions are deductible, one must understand the difference between tax-exempt and a qualified charity for tax deductibility purposes. 

A tax-exempt organization basically means that the organization is exempt from paying income tax themselves.  They typically receive income from a variety of means such as membership fees, dues, or even donations.  Individuals making contributions to these organizations may or may not receive a tax deduction.  The Internal Revenue Service (“IRS”) defines 27 different types of tax-exempt organizations under Section 501(c); however, contributions in only a handful of these categories is actually a tax deductible charitable contribution. 

Generally speaking, to qualify for tax deductible contributions, the organization must generally have a “charitable purpose.”

There are several types of charities that are presumed to be charities by the IRS.  In other words, they do not have to apply to be listed as a charity.  These include most government organizations including, the US Government (in case you don’t think you are donating enough already), any state government, local government, the District of Columbia or the government of a US possession.  Most churches and other religious organizations are typically presumed to be charities as well. 

Other organizations from which donations may be deductible include those that are organized for the following purposes:  religious, charitable, educational, scientific, literary, the prevention of cruelty to children or animals, or the promotion of amateur sports competition.  Other charities that may be deductible include veterans’ organizations, domestic fraternal societies, and certain nonprofit cemetery companies. 

Most other organizations must apply to be listed as a deductible charity.  Charities that must apply for exemption include private foundations, public charities, donor advised funds, charitable trusts and pooled income funds.  IRS Publication 78 list of thousands of organizations which are eligible for tax deductible contributions.    The listing is searchable and available online here.  You can also contact the IRS directly at 1-877-829-5500 determine if a donation qualifies.

A few common organizations/areas that people think are deductible that are not include:

• “The Fraternal Order of the Police.”   I am sure everyone has received these phone calls.   Deductions are generally not tax-deductible.  It even states this at the bottom of their receipt.
• “Magazine subscriptions.”  Quite often organizations do a fundraiser that involves magazine sales for a charity.  These “donations” are not deductible.  They are not “donations” at all since you receive something of value.  The same does with girl scout cookies and boy scout popcorn. 

If you are looking for a good charity to donate to this year, check out the Clover Area Assitance Center.  They are doing wonderful things in our local area.

The Salt Lake Tribune did an analysis of charities that are run by NBA players and found a wide range of problems. The Tribune reviewed the Form 990′s filed by 89 charities and determined that of the $31 million raised between 2005 and 2007, only around $14 million actually reached needy causes.

As we have written many times, you should always find out where the money goes when you donate to a charity. Philanthropic watchdog groups recommend finding a charity where at minimum of 65 cents on the dollar goes toward charitable programs, with the remaining 35 cents going to overhead. Even this seems low to me. I have seen charities with a 90/10 or better ratio. The average NBA player foundation saw a mere 51 cents go to charitable causes.

I commend these players for setting up the foundations and charities, but with the high overhead, perhaps it would be more beneficial to partner with an existing charity, donate money to them, and become a spokesperson for them (for free, of course – no Nike $$$ for this endorsement.)

For the full special report, see: NBA player charities often a losing game
For individual player foundation information, visit: NBA Player Charities