February 4, 2008 | Read Time: 1 minute
Washington
In his administration’s newly released 2009 budget, President Bush proposed making permanent a number of temporary incentives for charitable giving. He also proposed eliminating the two-tier structure of taxes that private foundations must pay on their investment income, replacing it with a flat rate of 1 percent instead.
The following provisions would become permanent if Congress were to approve President Bush’s budget:
Individuals age 70 1/2 or older could donate up to $100,000 from their Roth Individual Retirement Accounts (IRAs) without paying income tax on the money. A similar provision was in effect in 2007, but it expired at the end of the year and has not been extended. Grocery stores, restaurants, farmers, and other small businesses could claim an “enhanced tax deduction” for donating excess food to charity. This provision also expired at the end of 2007. Companies that donate computers, computer hardware, and software to schools and libraries would qualify for a charitable deduction. Donors could claim a deduction for partial donations of land for conservation purposes.
President Bush had proposed making all of these deductions permanent in last year’s budget as well.
In addition, the administration proposed a flat tax of 1 percent on all private foundations’ net investment income. Currently, private foundations pay 2 percent on such income unless their charitable giving for the year exceeds their average giving for the past five years. If that condition is met, the tax on investments is 1 percent.
The administration argues that a single tax rate would eliminate the threat that a foundation would have to pay the higher tax rate if it greatly increased giving one year to meet demand, since the one-year increase would also increase their five-year average. The flat rate could also make more funds available for donations and would simplify planning for taxes.
