If you are [...]]]> The compromise tax package just passed by Congress brings back for 2010 and 2011 the ability to donate tax-free from an individual retirement account. And, reflecting the end-of-year nature of the Congressional action, the 2010 donation can be made as late as January 31, 2011. (See section 725 of H.R. 4853).

If you are 70½ or older you can donate from your IRA directly to the qualified organization of your choice – tax-free! The tax package rule applies to the 2010 and 2011 tax years, and allows you to give up to $100,000 each year. You could call this rule the “Grin and Give Rule.”

Normally, when you take money out of your IRA, that money is taxable income to you. That’s fine, you say, you’ll just turn around and spend the money on your mortgage or give it to a charity — and get an offsetting deduction. But you might not get all or part of that deduction if, for example, you use the standard deduction or you itemize and your deductions get caught up in the phase-out rules.

Under the Grin and Give Rule, the money taken from the IRA is not taxable income to you. And you don’t have to worry about whether you use the standard deduction, itemize or face other deduction limits. Actually, if you were going to make a charitable deduction anyway, using the Grin and Give Rule could help you protect your other itemized deductions, and even save taxes on your social security. And, of course, the charity doesn’t have to pay any tax either.

Cautions: Don’t give away money you may need. The gift must be made directly from your IRA trustee to the charity. Be sure to obtain a written receipt from the charity to substantiate your donation. The Rule applies to many charities, but not all. At this moment, this is a Federal income tax law; check whether the your state’s income tax laws have been conformed to include the extension. Consult your tax advisor.

Special Charitable Contributions for Certain IRA Owners

This provision, currently scheduled to expire at the end of 2009, [...]]]> The Internal Revenue Service provided a reminder today on the ability of IRA owners to make tax-free donations to charities. This special rule expires December 31, 2009. I’m going to quote the IRS notice in full:

Special Charitable Contributions for Certain IRA Owners

This provision, currently scheduled to expire at the end of 2009, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

Extracted from IRS Newswire Issue Number: IR-2009-114

Come January 1, this rule is gone.

Read the details.