The new federal Pension Protection Act of 2006 was signed into law by President Bush on August 17. The law allows individuals to transfer IRA assets directly to charity without counting the funds as income and paying income tax. Such gifts also avoid the early withdrawal penalty. Donors, who are over 70 1/2 years of age, can make a gift from an IRA up to $100,000 per year.
This presents a wonderful way for donors to take a tax break and for charities to benefit.
However, the law also requires taxpayers to keep records of all cash donations. Records can be a receipt from the charity, a canceled check, or a credit card statement to prove they did, indeed, contribute the money. These records must be kept by taxpayers in case the IRS institutes an audit.
The law also makes it tougher to make non-cash donations such as cars, clothing, and household goods. Now the items must be in "good condition." Good condition is not defined but it would be wise to have something that can confirm the worth of a gift in case the IRS comes calling.
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