Charitable Giving - 5 Mistakes to Avoid - Part 4
By Greg Hammond, CFP®, CPA
Charitable giving provides benefits for the non-profit organization receiving the gift and for you. You can free up additional funds for charitable giving by being more effective with your charitable donations Are you currently giving in the most efficient and beneficial way? Avoid these 5 common mistakes so you can give more and make a greater impact on the non-profit organizations and causes you care about.
4. Not Using the IRA Charitable Rollover
Included in the 2012 American Taxpayer Relief Act was the re-establishment and extension of the IRA Charitable Rollover for individuals over the age of 70½. If you meet this age requirement, you can make tax-free distributions of up to $100,000 from an Individual Retirement Arrangement (IRA) directly to a non-profit organization without recognizing the distributions as taxable income. In addition, the distributions count towards your required minimum distribution for the year. Due to the fact that the rollover distributions are pre-tax dollars and are not recognized as taxable income, you do not receive a charitable giving tax deduction.
Making a rollover can potentially provide a number of benefits. First, by the IRA distribution to a non-profit being excluded from taxable income, you may realize additional tax savings by avoiding or reducing the potential phase-out of your tax deductions. In addition, by having a lower federal taxable income you may save more on your taxes if you live in a state with income taxes. Lastly, if you file a simplified tax return and only use the standard deduction, you do not get a tax deduction for the amount you donate to non-profits. However, the IRA Charitable Rollover allows you to reap the benefit of a lower taxable income, even if you do not itemize your deductions.