Although numerous tax breaks may be going by the boards at year-end, older taxpayers don’t have to wait to see what happens to one tax provision that already expired.
Strategy: Make a charitable donation from your IRA. In other words, have your IRA custodian transfer the funds directly to the charity without ever touching the money.
It’s a virtual no-lose proposition for certain individuals.
Here’s why: Under prior law, a taxpayer age 70½ or older could transfer up to $100,000 directly from an IRA to a qualified charitable organization without paying any tax on the distribution, although the gift could not be deducted as a charitable donation. A married couple could give up to $200,000. Expect this provision, which expired after 2011, to be revived retroactive to Jan. 1, 2012. But even if it’s not, you’re still OK.
• If the provision is reinstated retroactively, you’re sheltered from tax.
• If the provision isn’t reinstated retroactively, you must pay tax on the distribution. But then you’re entitled to a corresponding tax deduction for your charitable gift. So it’s a wash for tax purposes as long as you are allowed to claim a current deduction for the full amount of your charitable donation. (Check with your tax pro if you have any doubts about that.)
In either event, the distribution counts as a “required minimum distribution” (RMD) for individuals age 70½ or older. Therefore, you can meet this obligation while helping out a charity.
Tip: The only possible “losers” are nonitemizers and individuals whose 2012 charitable deductions might be limited by the tax rules.