Cash & clothing donations

The Pension Protection Act made changes related to how taxpayers document their cash and clothing donations.

Cash donations

Before the new law, taxpayers did not need to document monetary donations less than $250.

Starting in 2007, taxpayers will need to keep receipts documenting all monetary donations they claim as a charitable deduction on their tax return.

"Now, for any monetary gift, you need a bank receipt or written acknowledgement from the charity, including charity's name, the date of the gift, the amount of the gift."

A cancelled check or a credit card statement will also suffice. Taxpayers' best bet is to avoid cash donations and instead focus on check or credit card payments.

Taxpayers don't send these receipts to the IRS, but simply keep with their records in case of an audit.

Clothing donations

The new rule for clothing and other household donations which goes into effect for 2006 is that they must be in good or better condition to qualify for the deduction.

The law does not specify what "good" or "better" means, but taxpayers might consider taking photos of the items or getting a written acknowledgment from the charity that the items are in such conditions.

Make a detailed list of the items, such as "three pairs of pants, two shirts." Then the charity can acknowledge the exact items were received in "good" or "better" condition.

Sale of stocks & mutual funds

Key points

Stock sales cannot use average cost to calculate the cost basis.

Mutual funds can use average cost if the shares were held at the agent or the custodian.


How do I figure the cost basis when the stocks I'm selling were purchased at various times and at different prices?

If you can identify which shares of stock you sold, your basis is what you paid for the shares sold (plus sales commissions).

If you sell a block of the same kind of stock, you can report all the shares sold at the same time as one sale, writing VARIOUS in the "date acquired" column of Form 1040, Schedule D (PDF).

However, what you enter into the "cost or other basis" column is the total of all the acquisition costs of the shares sold.

If you cannot adequately identify the shares you sold and you bought the shares at various times for different prices, the basis of the stock sold is the basis of the shares you acquired first (first-in first-out).

Except for certain mutual fund shares, you cannot use the average price per share to figure gain or loss on the sale of stock.

Deadline for amending tax returns

Generally, to claim credits or refund, your tax returns or amended tax returns must be filed within three years of the original filing deadline.

You are too late to amend your 2002 return now. The deadline was April 15, 2006.

If you want to amend your 2003 return (which was due April 15, 2004), you have until April 15, 2007 to do so.


Note: the tax code says that the IRS has three years to give you a refund, three years to audit your tax return, and ten years to collect any tax due. Together, these laws are called the "statutes of limitations."

2006 federal tax rates

Taxable Income = Adjusted Gross Income - Deduction - Exemption(s)

Single

tax rate	taxable income	plus
10%	between $0 & $7,550	-
15%	between $7,550 & $30,650	$755
25%	between $30,650 & $74,200	$4,220
28%	between $74,200 & $154,800	$15,107.50
33%	between $154,800 & $336,550	$37,675.50
35%	over $336,550	$97,653

MFJ

tax rate	taxable income	plus
10%	between $0 & $15,100	-
15%	between $15,100 & $61,300	$1,510
25%	between $61,300 & $123,700	$8,440
28%	between $123,700 & $188,450	$24,040
33%	between $188,450 & $336,550	$42,170
35%	over $336,550	$91,043

LTCG & Qualified Dividends
5% for taxpayers in the 10% & 15% tax brackets
15% for taxpayers in the 25%, 28%, 33%, & 35% tax brackets