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IOWA SCRAMBLES TO CONFORM TO 2005 TSUNAMI DEDUCTION

January 17, 2005

The President has signed PL 109-1, allowing taxpayers to deduct January 2005 cash contributions for Tsunami relief on their 2004 tax returns. Now Iowans are waiting to see whether their state legislators will permit the same break on Iowa returns.

The federal Tsunami deduction allows individuals or corporations to deduct on their 2004 returns contributions by cash, check or credit card in January 2005 for the specific purpose of Tsunami relief. Taxpayers cannot again deduct the January 2005 contribution on their 2005 returns. They can, however, elect to deduct in in 2005 instead of 2004.

Bills have been introduced in both houses of the Iowa Legislature (SF 32 and HF 70) to allow the same treatment for Iowa. As written, it appears the bills would allow taxpayers to make different elections on their federal and Iowa returns. For example, a taxpayer writing a $500 check for Tsunami relief this month could deduct it on the federal 2004 return, but delay the deduction until 2005 for Iowa purposes.

That is probably a bad idea, administratively. Anything that unlinks federal and Iowa taxable income is a recipe for confusion. It would be best to require Iowa taxpayers to take the Iowa deduction in the same year they take the federal deduction.

PLACES TO MAKE THAT 2005 DONATION TO GET A 2004 DEDUCTION

Credit card donations made by January 31, 2005 at these sites will qualify for the deduction:

American Red Cross (via Amazon.com)

Salvation Army South Asia Relief Fund

WorldVision

Save the Children USA

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