From the April 2007 issue of Entrepreneur

Feeling philanthropic? Watch how you go about giving to your favorite cause. The Pension Protection Act, passed in 2006, brought some changes regarding charitable contributions, including making it tougher to get deductions for giving away noncash property, from old computers to old clothes. It also increased accountability for more intensive charitable efforts, such as donor-advised funds.

"In the past, noncash items were deducted for fair market value," says Lawrence J. Macklin, a wealth strategist with Bank of America Wealth & Investment Management in Baltimore. "That's still the rule, but now deductions are only allowed for items in 'good used condition or better.'" How the IRS and affected charities will define "good used condition" remains to be seen, but in the meantime, a safe bet would be to exercise discretion both when giving and valuing noncash donations.

Those who give through donor-advised funds, or DAFs (public charities set up to give on behalf of individuals or families), will also face greater scrutiny and restrictions. For example, DAFs are now prohibited from giving grants to individuals or to donors, donor advisors, their family members or any entities in which those individuals have more than 35 percent control.

The changes seek to put a stop to abuses of such funds, which have become increasingly common in recent years. "The new law adds penalties to donors and DAFs if the funds are not used to support legitimate charities," explains Macklin, who notes that there had been a dearth of tax law guidance on DAFs until the Pension Protection Act. "Some of the special rules and penalties that previously applied to [permanent funds] will now also apply to DAFs," he adds, "but a person using DAFs for legitimate charities in an arm's-length way should not run afoul of these rules."

Jennifer Pellet is a freelance writer specializing in business and finance.