Thursday, January 28, 2010

Save on 2009 Taxes by Helping Haiti

Normally, if you itemize deductions you can save by including charitable donations to appropriate non-profit organizations. The problem with this is that, unless you're diligent about tracking your tax liability and change your W-4, so that your withholding is adjusted accordingly, you really don't see this as a benefit until as much as a year after you've given the donations. For people moved to donate in the wake of the Haiti earthquake - which has become the largest charitable giving activity performed by Americans at $518 million, even exceeding the amount donated following 9/11 - these deductions would take over a year to materialize, until people file their 2010 taxes.

Fortunately, it looks like Congress is actually doing something right, and has implemented a new rule that allows those donating to Haiti relief to retroactively include this deduction on their 2009 tax return, if they choose to. This means they could make the donation, file their taxes, and get the deductible amount in their tax refund in a matter of weeks. There's a limited window for when those donations need to be made to count on the 2009 return.

Note: This deduction applies also for donations of supplies and other property, but I strongly encourage people not to donate supplies. Getting these to Haiti just isn't efficient. It's better to give to charities like Doctors Without Borders or UNICEF, who have infrastructures and supply chains in place to get these supplies there quickly and efficiently.

Now, you have a choice ... instead of doing this, you can still include this donation in your 2010 tax return, which certainly makes sense if you already have low taxes in 2009 and are worried about your 2010 liability.

(I'm in this position, as I have research and promotional expenses from String Theory for Dummies in 2009 that largely offset my other income, but don't yet know what my income will be in 2010, largely because I don't know if 40 Days of Giving will actually get published - i.e. generate revenue - or not.)

Of course, for many Americans, itemizing doesn't really provide much benefit over taking the standard deduction, but for some it has a real impact ... and these are the people who, as a rule, have more income overall, and therefore likely have more discretionary income available to give larger amounts. If you are in that category, and you've given to Haitian relief, it may be useful for you to think about using this retroactive deduction to help offset your 2009 tax liability.

The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them by means which the law permits, cannot be doubted.
- United States Supreme Court (Gregory v. Helvering, 293 US 465)