Woburn, MA (PRWEB) August 14, 2006
During the first week of August, the Senate approved the Pension Protection Act of 2006 by a vote of 93-5. The House had already approved this bill late in July. The President said that he plans to sign this Act into law.
In addition to sweeping changes to the pension plan rules, this Act also makes a few major changes to the tax deduction people can claim for their charitable donations. One big change applies to donations of clothing and household items. As of the enactment date of this new law, taxpayers can only claim a deduction for donated goods that are in good condition or better.
"Once President Bush signs the Pension Protection Act of 2006 into law, you'll no longer be able to claim a deduction for your donated goods that aren't at least in good condition. So now's the time to clean out your closets and donate your unused clothing and household items to a charity," suggests Andrew D. Schwartz, CPA founder of CPA Niche, LLC (http://www.cpaniche.com), a site where taxpayers can interact with CPAs who specialize in a variety of niches such as healthcare, real estate professionals, and lawyers.
As always, people who make donations of goods should list each item donated, including each item's fair market value, and file that list along with their other tax documents. Keep in mind that unless an item is brand new or in excellent condition, it is probably worth no more than one-third of its original cost.
Taxpayers who claim a deduction in excess of $500 for donated goods need to complete and attach a Form 8283 to their tax returns. And anyone looking to claim a deduction in excess of $5,000 generally needs to attach a written appraisal to their tax form as well. More information about non-cash contributions can be found in IRS Publication 526, Charitable Contributions, available at http://www.irs.gov. Give the IRS time to update this publication to reflect the new rules, however.
This Act also increases the documentation required for people claiming an itemized deduction for their donations of money to a charitable organization. Effective as of the Act's enactment date, taxpayers must maintain a cancelled check, bank record, or receipt from the charity substantiating the date and amount of the donation.
"The Pension Protection Act of 2006 made numerous changes to the U.S. Income Tax rules and will take quite a while for taxpayers and tax professionals to digest," warns Schwartz. "Even so, with the new standard for donations of clothing and household items taking effect when this bill is signed into law, anyone who waits to drop off their goods to a charity could lose out on a valuable tax deduction."
Andrew D. Schwartz, CPA is the editor and founder of CPA Niche, LLC (http://www.cpaniche.com), a site where taxpayers can interact with CPAs who specialize in a variety of niches such as healthcare, real estate professionals, and lawyers. Schwartz has provided tax and basic financial planning advice in interviews with various media, including the Washington Post and Wall Street Journal. He is available for interviews.