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by Harry Rabb, C.P.A.

Special to Tropical Breeze

Americans are going to have to keep better records of their charitable contributions if they want to claim them as tax deductions in coming years. Older Americans, meanwhile, will get a break on taxes when they make donations from their Individual Retirement Accounts.

These are among the charitable tax reforms tucked into the huge Pension Protection Act of 2006 that was approved by Congress this summer. Although much of the legislation focuses on keeping workers' pensions safe and fully funded, there are a number of provisions aimed at encouraging charitable giving while, at the same time, tightening reporting requirements.

Experts have said there likely would be a big, overall increase in donations from IRA accounts by elderly taxpayers. On the other hand, the stricter reporting requirements for contributions of cash and non-cash items, such as used clothing, could discourage some other donors.

One of the most significant changes has to do with tax-free distributions from IRAs for charitable purposes. When it comes to charitable giving, the biggest part of the new law is the ability for people over 701⁄2 to make a direct contribution from their IRAs straight to a charity.

In the past, the owner of a traditional IRA would have had to take a distribution from the account and include it in his or her taxable income before making the donation. IRA owners will be able to make maximum annual contributions of $100,000, although they also could smaller amounts.

The limitations are that the donor must be 701⁄2 when making the gift and must contribute the money to a public charity such as the United Way and not to a nonpublic entity such as a donor-advised fund or private foundation, he said.

The IRA provision will be good for only two years, 2006 and 2007, and then will disappear if not extended by Congress.

Experts are saying they believe the IRA provision could generate hundreds of millions of dollars for charities if the nonprofit groups can get the word out quickly to eligible donors about the tax law change.

The revisions governing cash and non-cash contributions will affect the millions of taxpayers who itemize deductions for charitable donations.

Congress said there was rising concern about abusive deductions, especially involving clothing and household goods. It cited Internal Revenue Service statistics indicating that individuals reported non-cash donations totaling almost $37 billion in 2003, the most recent year available, with nearly half representing clothing.

Starting immediately, donated items will have to be in "good used condition or better," according to the new law. It remains unclear how this is going to be enforced, since it's unlikely the government can have a monitor at every Salvation Army or Goodwill intake center checking the quality of donations, the tax experts have said.

Still, this provision will give the IRS the ability to deny deductions for contributions with minimal monetary value, such as used socks, in audits and other reviews of returns.

Also, in the past, an appraisal was required for any item valued at $5,000 or more; under the new law, an appraisal will be needed for any item valued at $500 or more.

There may be some donors who don't want to go through the trouble of sorting and assessing. For those who felt the deduction was the motivation, it could constrain giving.

When it comes to cash contributions, no deduction will be allowed starting in 2007 unless the donor can show a bank record or a written communication from the charity. The document must include the name of the charity, the date of the contribution and the amount.

In the past, consumers needed written acknowledgment from qualified charities only for contributions of $250 or more.

Clearly, people who in the past gave cash, for example, to a weekly church collection, may want to shift to checks, or for larger donations, credit cards, starting next year. That's because the canceled check or bank statement could serve as proof of the donation.

There was concern, however, about the possible burden on charities. If you're dealing with a major contribution, writing a receipt is one thing. But if you're getting thousands of tiny gifts, then it creates a whole burden of expense for the charity.

The nonprofit sector is watching to see what "innovative solutions" there might be for this, such as computer-generated receipt systems.

The IRS currently is reviewing all its tax forms, publications and Internet sites to identify the changes needed for the upcoming tax season, according to spokesman Bruce Friedland.

As always, the best advice is to consult a professional before it becomes clear that what you have done is not permitted. The only thing certain about tax law is change.

This information is provided as a public service and should not be construed as individual accounting or tax planning advice. For information on how these general principles apply to your situation, please consult an accounting or tax professional.

Harry Rabb is a C.P.A. and owner of Accounting Services, Inc., 935 Main Street, Suite D-1, Safety Harbor. Call 727-725-4121.