YEAR END CHARITABLE DONATION UPDATES

Since it is year end, and the Christmas Season, many people have two priorities at the top of their list.
1. Maximizing their deductions AND
2. Bringing joy to others and helping our fellow man.

Charitable Contributions are a way to do both at once.

If you can itemize, one of the best deductions left is Charitable Contributions.

I am going to do two or three posts about Charitable Contributions. The first is a relatively new opportunity and may not last long. That is the:

Special Charitable Contributions for Certain IRA Owners


This provision, currently scheduled to expire at the end of 2009, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity.

This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Of course the Required Minimum distribution has been deferred for tax year 2009, but this is an excellent time to get the money out of those IRA's TAX FREE.

Many retirees do not necessarily need their IRA money at this time and do not want to take the distribution out of their IRA, because it then becomes taxable, and even worse, it makes more of their Social Security taxable.

This is a perfect avenue to take the money out TAX FREE. You do not get to deduct the donation, HOWEVER, you don't have to pay tax on the distribution, and it doesn't increase your taxable income. That in itself will probably outweigh the tax deduction that you forego.

This provision was actually supposed to end December of 2008 and Congress extended it for one more year. Whether they will extend it again or not will remain to be seen.

Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions.

Sincerely, Deborah Sherwood, EA