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It’s better to give than to receive: The new rules for charitable contribution write-offs

Author Úrsula Carrión is a CPA and member of the Puerto Rico Society of CPAs’ tax committee

Editor’s Note: This article is the second in a series offering helpful tips to navigate this year’s tax return filing process, considering the many changes brought on by the government’s Tax Reform.

As you are preparing your 2011 Puerto Rico tax forms, you are probably wondering which deductions are still allowed and which were eliminated. Well, if you are used to making charitable donations, you’re in luck!

Starting 2011, your philanthropic side will be rewarded beyond the usual satisfaction you get from giving and helping others.

This is due to the changes introduced by the 2011 Puerto Rico Internal Revenue Code, as amended (2011 Code) that will allow — in the case of individuals — a deduction equal to 100 percent of charitable contributions up to 50 percent of their adjusted gross income. Even if you cannot take the complete deduction in a taxable year because it exceeds the allowable limit, you will be able to carry the excess over during the next five taxable years.

As you may remember, previously, you were generally limited to a deduction of just 33 percent of your charitable contributions. The purpose behind the changes to this deduction is to promote charitable donations and recognize the importance of Puerto Rico’s nonprofit sector.

It is important to mention that a deduction for a charitable donation may only be claimed during the taxable year in which it is paid regardless of when the individual taxpayer promised the donation or what accounting method was used.

Furthermore, in any tax year, when a taxpayer wishes to deduct a donation of more than $250, they must obtain a written statement from the organization to which the contribution was made. The statement shall contain the name and address of the donor, the amount given and date in which it was given, and any other relevant information. If the donation was made through payroll deduction, the employer shall report it accordingly in form 499R2/W-2PR, commonly known as W-2.

With respect to corporations, as a general rule, charitable contributions may be deducted up to 10 percent of their net income (without taking into consideration this deduction and the dividend received deduction.) In cases where donations by a corporation exceed the 10 percent limit, the corporation may also carry over the excess deduction to the next five taxable years; the excess will be subject to the 10 percent per year limit.

This constitutes a benefit for corporations because previously, under the Internal Revenue Code of 1994, they were only allowed to deduct donations up to 5 percent of net income.

Unlike individuals, corporations that keep their books in the accrual method may opt to claim as a deduction for a taxable year, any donations paid before the fifteenth day of the fourth month following the closing of said taxable year and if the corporation’s board of directors has authorized the transfer during said taxable year.

For example, if a corporation’s taxable year ends on Dec. 31, 2011, it may deduct, on the 2011 return, donations made until April 15, 2012. This option has to be done at the time of filing of the tax return by indicating the amount of the donation and filing a schedule with the tax return indicating said donation.

As you can see, there are additional incentives for making charitable contributions starting with taxable year 2011. So, go ahead, make your charitable donations, since they are the gifts that will give something back.

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This story was written by our staff based on a press release.

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