Charitable Giving Incentives

Qualified contributions are not subject to the overall limit on itemized deductions or the 50% adjusted gross income (AGI) limit. A qualified contribution is a charitable contribution paid in cash or by check after August 27, 2005, and before January 1, 2006, to a 50% limit organization (other than certain private foundations described in section 509(a)(3)) if you make an election to have the 50% limit not apply to these contributions.

Your deduction for qualified contributions is limited to your AGI minus your deduction for all other charitable contributions. You can carry over any contributions you are not able to deduct for 2005 because of this limit. In 2006, treat the carryover of your unused qualified contributions as a carryover of contributions subject to the 50% limit.

Qualified contributions do not include a contribution to a segregated fund or account for which you (or any person you appoint or designate) have or expect to have advisory privileges with respect to distributions or investments based on your contribution.

A corporation may elect to deduct qualified cash contributions without regard to the 10% taxable income limit if the contributions were made after August 27, 2005, and before January 1, 2006, to a qualified charitable organization (other than certain private foundations described in section 509(a)(3)), for Hurricane Katrina, Rita, or Wilma relief efforts. The corporation's deduction for these qualified contributions is limited to 100% of taxable income (as modified for the 10% limit) minus the corporation's deduction for all other charitable contributions. Any qualified contributions over this limit can be carried over to the next 5 years, subject to the 10% limit.

Each partner in a partnership and each shareholder in an S corporation makes a separate election to have the appropriate limit not apply.

For more information, see Publication 526 or Publication 542, Corporations. Publication 526 includes a worksheet you can use to figure your deduction if any limits apply to your charitable contributions.

The following are special standard mileage rates in effect in 2005 and 2006 for the cost of operating your automobile for providing charitable services solely related to Hurricane Katrina.

• 29 cents per mile for the period August 25 through August 31, 2005.
• 34 cents per mile for the period September 1 through December 31, 2005.
• 32 cents per mile for the period January 1 through December 31, 2006.

You can exclude from income amounts you receive as mileage reimbursements for the use of a private passenger automobile for the benefit of a qualified charitable organization in providing relief related to Hurricane Katrina during the period beginning on August 25, 2005, and ending on December 31, 2006. You cannot claim a deduction or credit for amounts you receive as a mileage reimbursement. You must keep records of miles driven, time, place (or use), and purpose of the mileage. The amount you can exclude from income cannot exceed the standard business mileage rate (shown below) for expenses incurred during the following periods.

• 40.5 cents per mile for the period August 25 through August 31, 2005.
• 48.5 cents per mile for the period September 1 through December 31, 2005.
• 44.5 cents per mile for the period January 1 through December 31, 2006.

Any taxpayer engaged in a trade or business is eligible to claim a deduction for a contribution of "apparently wholesome food" inventory to a qualified charitable organization described in section 501(c)(3) (except for private nonoperating foundations) after August 27, 2005, and before January 1, 2006. "Apparently wholesome food" is food that meets all quality and labeling standards imposed by federal, state, and local laws and regulations even though the food may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions.

The deduction is equal to the lesser of:

• The basis of the donated food plus one-half of the gain that would have been realized if the donated food had been sold at fair market value on the date of the donation, or
• Two times the basis of the donated food.

The taxpayer must receive written certification from the donee stating:

• The donated food is related to the purpose or function of the donee's basis for exemption under section 501(c)(3) and is to be used solely for the care of the ill, the needy, or infants; and
• The food was not given in exchange for money, other property, or services.

For a taxpayer other than a C corporation, the deduction is limited to 10% of the taxpayer's total net income from all trades or businesses from which the food contributions were made (figured without regard to the deduction for charitable contributions). For example, if a taxpayer is a sole proprietor, a shareholder in an S corporation, and a partner in a partnership, and each made a contribution of apparently wholesome food inventory, the taxpayer's deduction is limited to 10% of the taxpayer's total net income from the sole proprietorship, S corporation, and partnership (figured without regard to the deduction for charitable contributions).

A corporation (other than an S corporation) may be allowed a charitable deduction for a qualified book contribution made after August 27, 2005, and before January 1, 2006, to a public school that:

• Provides elementary or secondary education (kindergarten through grade 12), and
• Normally maintains a regular faculty and curriculum and has a regular enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

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The deduction is equal to the lesser of:

• The basis of the donated books plus one-half of the gain that would have been realized if the donated books had been sold at fair market value on the date of the donation, or
• Two times the basis of the donated books.

The corporation must receive written certification from the school stating that the donated books are suitable for the organization's educational programs and will be used for such programs.