Thursday, November 10, 2011


Year-end planning Tip: Individuals age 70 1/2 or older should consider making charitable contributions from IRAs

This year may well be the last chance for taxpayers age 70 1/2 or older to take advantage of an up-to-$100,000 annual exclusion from gross income for otherwise taxable individual retirement account (IRA) distributions that are qualified charitable distributions. Such distributions aren't subject to the charitable contribution percentage limits and aren't includible in gross income. This tax advantage will not be available for distributions made in tax years beginning after Dec. 31, 2011.

This is a great opportunity for taxpayers that do not have enough itemized deductions to file the “long form.” For married couples over age 65 the standard deduction is $13,900 and for singles it is $7,250.

Where this becomes a great planning tool is when the taxpayer is in the zone where they are paying tax of Social Security Benefits and making charitable contributions that they effectively can’t deduct because they are taking the standard deduction.

For example:
Bonnie and Clyde are both over age 70 ½. They have interest and other income of $20,000 and are taking $10,000 per year from their IRA. In addition they have Social Security benefits of $20,000. Bonnie and Clyde got religion after they retired from the banking business and annually make charitable contributions of $7,500.

If they draw money from their IRA and put it in their checking account and then make a charitable contribution their total federal and state tax is $1,703.

On the other hand if they direct their IRA administrator to take the IRA money of $7,500 and give it to their charity their tax drops to $176.

There is a saving so $1,527. Pretty cool… easier than robbing a bank.

If you need any more information on this let me know. Remember, unless Congress renews this tax strategy 2011 is your last chance. You might want to think about doing your 2012 contribution in 2011 to beat the expiration deadline.