heidi | Good News re IRS & Tsunami Donations (Reply)

For those of you who pay US taxes, a law passed at the end of last week may impact (for the good) your plans to donate to any of the Tsunami Victim Rescue/Relief Fundraisers - if you donate by January 31, you can claim the deduction on your 2004 tax return or on your 2005 return - it's your call as to which. Read the article - here or

Now, donors who didn't get their checks in the mail by year's end have been given another chance. Last week, President Bush signed into law a bill that allows taxpayers to deduct contributions to tsunami relief efforts on their 2004 tax returns, as long as the money is donated by Jan. 31.
The change means taxpayers who make charitable contributions this month won't have to wait until next year to deduct them.

Supporters of the rule change hope it will encourage more people to contribute to tsunami-related relief efforts. In a USA TODAY/CNN/Gallup Poll survey conducted over the weekend, more than 40% of Americans said they had thought about donating to tsunami relief efforts but haven't yet done so.

You don't need a special form to claim the deduction when you file tax returns. As long as you send in your check by the end of the month, the contribution "will be treated just like it was still 2004," IRS Commissioner Mark Everson said Monday.

There are, however, some details you should be aware of before you start writing checks. Among them:

•The charitable contribution must benefit victims of the Dec. 26 tsunami.

To ensure your donation qualifies, contribute to a charity that has established a designated fund for tsunami victims, suggests Yasmin Causer, a financial planner for Cabot Money Management in Salem, Mass.

Make sure the charity is a tax-exempt U.S. organization. Direct contributions to foreign charities may not qualify, even if they're involved in tsunami relief efforts.

Be careful: Law enforcement agencies are warning donors to be on the lookout for charity scams seeking to exploit the tragedy.

To find legitimate, tax-exempt charities involved in tsunami relief, check out the Internet site for the U.S. Agency for International Development, www.usaid.gov. Click on "Tsunami Relief" for a list of agencies assisting in the relief and recovery effort. You can also find a list at www.usafreedomcorps.gov.

•You must donate money.

Contributions of canned goods and clothing don't qualify for the special deduction. Which is just as well, because most relief agencies prefer monetary contributions. They can use cash donations to purchase goods and services near the affected areas, which is cheaper than transporting items from thousands of miles away.

•Pledges don't count.

To qualify for the deduction on your 2004 tax returns, you must mail your check or charge your donation on your credit card by Jan. 31. Simply promising to contribute at some later date won't cut it, says William Massey, senior tax analyst for tax publisher RIA.

Supporters of the extended deduction hope the exception will encourage donors to follow up on their pledges.

Too often, individuals pledge money in the wake of a disaster, then fail to follow up, Causer says. "As time goes on, memory fades," she says.

•The extended deadline is optional.

If you donate to a tsunami relief agency this month, you can deduct the contribution on your 2004 tax returns, or wait and claim it when you file for 2005, Massey says.

Suppose, for example, that you expect your income to increase significantly this year and bump you into a higher tax bracket. In that case, claiming the deduction on your 2005 tax returns will generate a bigger tax break. On the other hand, if you received a big bonus last year, you may fare better by claiming January donations on your 2004 returns, Causer says.

Just make sure you don't inadvertently claim the same deduction on your 2004 and 2005 returns.