Charitable Contribution: Tax Plan for Potential IRA-to-Charity Provision


2015_09_03 Charity, donation3Are you are 70.5 or over? Have you not taken all or any of your 2015 required minimum distribution (RMD) from your IRA? Do you plan to but have not yet made a significant charitable contribution? Here is a tip that could save some tax dollars.

In previous years, there has been a tax provision allowing an individual age 70.5 or older to make a direct transfer of money. This transfer could be up to $100,000, from his or her IRA account to a qualified charity. That provision expired on December 31, 2014. However, Congress has extended that provision in the past. There is a good chance it may be extended again. In fact, the Senate Finance Committee working group on individual tax reform, just recently, recommended extending the provision.

What if Congress Does Not Extend the Charitable Tax Plan Contribution?

If Congress does not extend it, you will have still satisfied your minimum distribution requirement. The amount transferred to the charity will still count as a charitable contribution. If Congress does extend it, you can take advantage of the tax benefits described later in this article.

If you wait to see whether the provision will be extended, and Congress waits until the last minute, you may not have time to take action. This was the case for most taxpayers last year. You may have already taken your RMD or made that charitable contribution.

What happens if the provision is extended?

If the provision is extended, here is how it will play out on a tax return:

  1. The distribution is excluded from income;
  2. The distribution counts towards the taxpayer’s Required Minimum Distribution for the year; and
  3. The distribution does NOT count as a charitable contribution.

At first glance, this may not appear to provide tax benefits. However, by excluding the distribution, a taxpayer lowers his or her income (AGI) for other tax breaks pegged at AGI levels such as medical expenses, passive losses, taxable Social Security, etc. Those who do not itemize essentially receive the benefit of a charitable contribution to offset the IRA distribution.

Would you like more information how to maximize your tax benefit based on a charitable contribution?

If you think that this tax provision may affect you. Would you would like to explore the possibilities with some tax planning? Alex Franch, BS EA at 781-849-7200.

You can read more about the potential IRA-to-Charitable Tax plan contribution from 2014 here.

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For more information, call Alex Franch at 781.789.7200. WorthTax has locations in Norwell, Dedham, and Weymouth, Massachussetts.
Alex Franch

Mr. Franch is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Mr. Franch is an Enrolled Agent and has eight years of tax preparation experience. He has been serving individuals, families, and businesses for several years with tax and financial planning strategies and is a junior partner with the firm. Mr. Franch is licensed by the Financial Industry Regulatory Authority (FINRA) with a Series 6, 63, 65, and 7, and by the Commonwealth of Massachusetts Division of Insurance.

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