To encourage private contributions for victims of the southern Asia tsunami, the federal government is extending a tax break to those who make donations this month to charities active in the relief effort.
Under legislation signed into law Friday, taxpayers who make cash donations through the end of this month to U.S. charities involved in tsunami relief can deduct the contributions off 2004 federal tax returns. Usually, they would have had to wait until next year to take the deduction.
"There are no extra forms to fill out or any additional burdens for taxpayers," IRS Commissioner Mark W. Everson said in a statement yesterday. "As long as you send your check by the end of the month, the donation will be treated just like it was still 2004."
Since the tsunami struck last month, there has been an outpouring of financial support for victims. Given that assistance, it is unclear how much the deduction extension will boost giving, charities say.
To qualify for the tax deduction, donations must meet certain criteria. And consumer groups advise choosing a charity with care, as complaints begin to surface about unscrupulous groups, particularly on the Internet, that pretend to raise money for tsunami victims but instead extract dollars and financial information from donors.
To receive the tax deduction extension, taxpayers must file an itemized return. Donations must be made in cash, by check or credit card.
Contributions must be made to a qualified charity and go specifically toward tsunami relief, experts said. Generally, contributions to foreign organizations are not tax deductible.
To find out if a charity is qualified, donors can search the IRS Web site at www.irs.gov. Churches and governments, however, may be qualified but not listed on the IRS site, the agency said. Donors also can search online for groups involved in tsunami relief efforts at www.usafreedomcorps.gov.
About half the states, including Maryland, automatically adopt changes to federal tax laws. That means Marylanders also will get the deduction extension on state income tax returns, too.
Donors can opt to deduct this month's donation when filing returns next year. Filers need to weigh their own tax situation to determine when is the best time to take the deduction.
For example, if you are in a higher tax bracket this year because you found a better-paying job, you would be better off waiting to take the tax deduction next year, said William E. Massey, a senior tax analyst at RIA, a tax information provider in New York.
Do your homework when choosing a charity. While there hasn't been a groundswell of fraud cases, Better Business Bureaus around the country are reporting incidents where con artists are trying to get donors' credit-card or banking information by pretending to raise money for tsunami victims, said Bennett Weiner, chief operating officer of the BBB Wise Giving Alliance based in Arlington, Va.
Some con artists have resorted to "phishing" schemes, where they send e-mail messages that include a link to what appears to be the Web site of a legitimate charity, Weiner said. The fake charity's goal is to get a donor to divulge credit-card information.
Also, some Internet appeals pretend to be from tsunami victims, offering to split their money with you if you help them transfer it out of their country. These swindlers seek your bank account information, Weiner said.
Some schemes are more traditional, with con artists telephoning consumers and asking them for their credit-card information so a donation can be made, Weiner said.
Organizations involved in tsunami relief say they appreciate the tax deduction extension, although their views differ on how it will affect fund raising.
"We have seen really strong support without this. For a lot of folks, it may [cause them] to maybe make an extra donation," said Lisa Bonds, vice president for external relations for Lutheran World Relief in Baltimore, which has raised $4.7 million for its tsunami work.
The American Red Cross reported that, as of Sunday, it had nearly $151.3 million in pledges for tsunami relief, which includes more than $200,000 in pledges from the Central Maryland chapter.
"At the Red Cross, we have seen an enormous outpouring of people, organizations and agencies coming forward to want to help raise money for disaster relief," said Linnea Anderson, a spokeswoman for the American Red Cross of Central Maryland. "I can't imagine how a tax incentive would stir that pot more."
Unfortunately, the tax break appeals only to donors who file an itemized return, said Becky Graninger, vice president of marketing for World Relief in Baltimore.
"It reinforces the fact: Give now and give today. It's a quick fix and we have done our jobs," Graninger added. "The reality is the rehabilitation from the tsunami is going to take years."