Tax Carnival #63: Filing Season Begins
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Special tax breaks proposed for Haitian earthquake relief donations

As relief workers scramble to bring aid to the victims of last week's devastating earthquake in Haiti, U.S. lawmakers are working out details of a tax break for those who've donated (or plan to donate) to the cause.

Under a bipartisan House bill, if you contributed money to nonprofits providing relief to the stricken island nation, you would be able to deduct those donations on your 2009 tax return. This would allow you the tax benefit of the gifts now, rather than making you wait almost a year to claim the charitable gift when you file your 2010 tax return in 2011.

This approach is similar to the deductibility time shifting Congress granted in 2005 following the Indian Ocean tsunami that struck in late December 2004.

Under the Haitian donations proposal, charitable cash gifts -- and in IRS-speak, "cash" also means donations charged to a credit card, as well as checks -- that are made on Jan. 12, the day of the quake, through Feb. 28 would qualify for the accelerated deduction.

Note, however, that this is optional. If you'll get more of a tax benefit by waiting, you can decide to postpone your deduction until next filing season.

House Ways and Means Committee Chair Charles B. Rangel (D-N.Y.) and ranking minority member Dave Camp (R-Mich.) are expected to introduce the bill today.

"This measure provides an immediate benefit for those who have already given and incentive for those who are considering a charitable contribution," Rangel said in announcing the bill.

Haiti Struggles With Death And Destruction After Catastrophic Earthquake

"The contributions Americans make to the relief efforts in Haiti can literally mean the difference between life and death to many of those still struggling through this tragedy and devastation," said Camp. "To the extent that we can encourage additional giving sooner, by making these donations tax deductible, it is the right thing to do."

Across Capitol Hill, Senate Finance Committee Chair Max Baucus (D-Mont.) and ranking minority member Chuck Grassley (R-Iowa) say they will bring the measure to their colleagues as soon as the bill is passed by the House. House leaders say that could happen this week.

Dueling donation bills? Two other Senators are working on a slightly different charitable tax break approach in connection with the Haitian catastrophe.

New York Democratic Senators Charles Schumer and Kirsten Gillibrand want to temporarily remove the deduction limits for both individuals and corporations for donations to Haiti. Under current law, individual taxpayers cannot deduct as charitable gifts more than 50 percent of their income in a tax year. The annual deduction limit for businesses is 10 percent of income.

This proposal also takes its cues from previous tax-law changes in the wake of a natural disaster.

After Hurricane Katrina nearly wiped out New Orleans in the late summer of 2005, an emergency tax act allowed for much more generous charitable contribution deductions for donations to that storm's victims that were made through the end of that tax year.

Schumer and Gillibrand are also urging their colleagues to renew the expired tax incentive for charitable donations of food inventory. This law, which is part of the extenders bill passed by the House last year but not the Senate, would let grocery stores and others to deduct the market value of contributed food rather than the production cost.

It's not clear whether the two New York Senators will make the food provision part of their increased deduction limit bill or simply push for fast and final action on the full slate of extenders.

'Qualified Disaster' declaration sought: Meanwhile, the Council on Foundations is urging the IRS to declare the earthquake a qualified disaster (under section 139(c)(3) of the Internal Revenue Code) so that companies can make specific payments toward the relief effort from company foundations.

In a letter to IRS Commissioner Douglas Shulman, the Council's President and CEO Steve Gunderson noted that the move would provide private foundations greater flexibility in contributing to long-term earthquake relief in Haiti.

Such a determination was made by Shulman following the China earthquake in 2008 and by his predecessor after the 2004 East Asian tsunami.

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