Congress is moving closer to extending the life of a popular tax break that has encouraged many older investors to donate to charity in recent years.
This provision, which expired at the end of last year, generally allowed taxpayers age 70 1/2 or older to transfer as much as $100,000 a year from their individual retirement accounts directly to their favorite charities, without having those transfers counted as taxable income. Charities say this law helped increase giving.
Nobody knows how soon Congress will act, however. Thus, if you have been considering such a move this year, wait until Congress puts the finishing touches on the legislation. Congressional bickering has grown so intense that it’s risky to take any action based on hunches about what lawmakers will do.
Even so, the outlook for enactment of this provision appears bright, tax advisers say.
This legislation has many powerful backers. Among them is Independent Sector, a Washington-based nonprofit, nonpartisan coalition of about 550 charities, foundations, and corporate philanthropy programs.
If Congress resurrects the provision soon, make sure you master the fine print before racing out to tap your IRA for a big donation. Though it’s possible that some tweaks will be made to the bill, the final product is expected to look the same, or nearly the same, as the one that expired Dec. 31. Here are a few key points to keep in mind:
- Donors must make transfers directly from an IRA to a qualified charity.
- You can’t deduct donations to charity made directly from your IRA. But many people made the transfers anyway since the transfers didn’t count as part of taxable income. That’s a significant point since eligibility for many other tax benefits depends on your adjusted gross income.
- Not all charities are eligible. For example, donor-advised funds weren’t considered eligible recipients, according to the Internal Revenue Service.
- If you do everything correctly, the transfer counts toward your required minimum distribution for the year. Last year, the required minimum distribution rules were suspended in reaction to the severe recession and falling stock prices during 2008. But the required minimum distribution requirements sprang back to life at the beginning of this year and will remain in effect until further notice. Congress probably won’t suspend those requirements for 2010.
- Make sure you have all the necessary documentation to support your donation. For details on recordkeeping, see IRS Publication 526 at www.irs.gov.
Similar Posts:
- Donating Credit Card Rewards to Charity?
- Consumers in debt may still want to make charitable contributions
- Banks Announce Fee Waivers for Credit Card Donations to Japan Disaster Assistance
- Medical debt relief program to help Tennesseans pay down bills
- No More “Free” Reports from FreeCreditReport.com
Recent Comments