Is 2011 the Year to Give? IRA Contributions to Charity

Joe Popp | December 9th, 2011

If you’re thinking about donating a portion of your IRA to charity, you’ll receive a greater tax benefit if you do so before December 31. A popular provision is set to expire at the end of the year, and there is no guarantee the provision will appear in an extender bill in Congress anytime soon.

Beginning next year, you’ll have to take the distribution as taxable income if you wish to donate IRA funds to charity. When you then give the distribution to charity, you can only deduct the contribution to the extent it is below 50 percent of your income.

In some cases, you may also be limited in itemizing deductions due to alternative minimum tax or other itemized phase outs.  Further, claiming the distribution as income can cause Social Security income to become more taxable.  All of this means a greater potential tax liability if you wish to give your IRA distribution to charity beginning in 2012.

The expiring beneficial provision allows you to take a distribution and give it directly to charity, without having to claim the distribution as income on your tax return. As a result, the distribution doesn’t incur liability against your Social Security income limit, nor is the deduction potentially limited due to the application of the 50 percent rule, alternative minimum tax, or itemized deduction phase-outs based on income.

With the current legislative climate in Washington, we don’t expect the charitable contributions provision to become part of legislation in the near future. However, since 2012 is an election year, it’s possible it may show up in legislation later in the year.

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