Time is running out on a unique tax break for older taxpayers with charitable intentions. If you donate funds directly from your IRA to a qualified charity of your choice, you can avoid tax on the distribution.
The 2006 pension law created a two-year window for these tax-free distributions. This provision was extended through 2009 by last year’s bailout law, so there are just a few months left to cash in on this tax break.
Here are more details: If you are age 70 1/2 or older, you can exclude from tax “qualified charitable distributions” of up to $100,000 that would otherwise be taxable as IRA distributions. A qualified charitable distribution isn’t reported as taxable income or claimed as a charitable deduction. The distribution also will not increase your adjusted gross income (AGI) for other tax purposes.
For example, if you have unreimbursed medical expenses this year, the IRA distribution to charity may help you qualify for a medical expense deduction. Similarly, you might be able to reduce the tax due on Social Security benefits through such a gift.
Note that your contribution must otherwise qualify as a charitable donation. Also, contributions must be made directly by an IRA trustee to the charitable organization.
Remember this tax break expires on Dec 31. Set up a meeting to determine if this technique is appropriate for your particular circumstances. Call our office to arrange a one-on-one consultation.