By Sheryl Rowling
SAN DIEGO — Hanukkah has brought us a gift from Congress. The latest “Tax Extender” bill allows deductible charitable contributions to be made directly from your IRA.
Why is this a benefit, you might ask?
Ordinarily, a charitable deduction is an itemized deduction that can be subject to phase-outs (reducing your tax savings) based on your “Adjusted Gross Income” (AGI). By paying the contribution from your IRA instead, you reduce your AGI, which can lower the tax on your Social Security income and increase the value of your other itemized deductions.
To qualify, you must be at least age 70-1/2 and the check from the IRA must be made payable directly to the charity. Rather than claiming income on the IRA distribution and deducting the charitable contribution, you simply exclude the distribution from income. The maximum exclusion is $100,000 per person and you can even use your Required Minimum Distribution (only if you haven’t taken it yet this year)!
Although making a charitable contribution from an IRA is better tax-wise than donating cash or writing a check, for those who intend to make larger gifts, it is generally far more advantageous to donate appreciated securities to charity. This is because the IRA donation essentially offsets income with a deduction, while donating appreciated securities will offset income and avoid tax on the appreciation. In other words, donating appreciated securities gives you a double benefit.
It should also be noted that in either case, you must have a charitable intent. Unless your tax rate is 100%, you’ll have more money in your pocket – even net of taxes – by not making a contribution. Giving from an IRA or donating appreciated shares provides more bang for your charitable buck, provided you want to give in the first place!
If you want to take advantage of either (or both) of these giving opportunities, you need to move quickly! December 31st is fast approaching. Be sure to talk to your CPA. And, if you have further questions on how to do this, check with the Jewish Community Foundation of San Diego (www.jcfsandiego.org).
Happy Hanukkah!
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Sheryl Rowling is a certified public accountant, personal finance specialist, and principal of Rowling & Associates. She may be contacted via sheryl.rowling@sdjewishworld.com …