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Pull off charitable rollover on your own

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in Small Business Tax,Small Business Tax Deduction Strategies

As with certain other tax law provisions, another extension of the “charitable rollover” remains in doubt for the 2014 tax year. But you don’t have to wait around for Congress. Take matters into your own hands.

Strategy: Figure out your minimum required distribution (RMD) for 2014. Then give that money to charity.

It amounts to a virtual wash for tax purposes. Thus, you’re basically in the same position as if you had used the charitable rollover technique.

Here’s the whole story: Thanks to a 2006 tax law change, an individual age 70½ or older was able to transfer IRA funds directly to charity, up to an annual limit of $100,000 ($200,000 for a married couple). Although no tax deduction was allowed, donors weren’t taxed on the distribution either.

However, the charitable rollover provision, which has expired and been reinstated several times, expired again at the end of 2013. Its fate remains uncertain.

Idea in action: Individuals older than 70½ are required to take RMDs from their IRAs in any event. Those distributions are taxable at ordinary income rates. If you figure out your RMD for 2014 and then contribute that exact amount to charity, the resulting charitable deduction will essentially wipe out the tax liability for the RMD on your return. (Slight variations may exist due to the reduction of itemized deductions for upper-income taxpayers.)     

Tip: Congress is expected to revisit the charitable IRA rollover break after the November midterm elections.

{ 1 comment… read it below or add one }

Russell Kirk September 22, 2014 at 6:49 pm

What if I distribute the amount directly to the charity.. If Congress does not pass the bill won’t the result be the same as if I had taken the RMD and then paid the charity??


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