The IRS is reminding senior citizens of an eleventh-hour reprieve granted by the new American Taxpayer Relief Act of 2012 (ATRA). An older individual can still pull off a tax-free, IRA-to-charity transfer of funds . . . but only if he or she acts by January 31 (IR-2013-6).
As a result, you might want to contact clients who may be interested in this unique tax-saving opportunity.
Here are the details: Under prior law, an IRA owner age 70½ or older could transfer up to $100,000 annually from an IRA to a qualified charitable organization without paying any tax on the distribution. (The annual exclusion limit was effectively doubled to $200,000 for a married couple.) The distribution wasn't deductible either – so it amounted to a "tax wash" – but this was a good way for older taxpayers to give to charity without exhausting other funds. Even better, the payout counted as a required minimum distribution (RMD).
Unfortunately, however, this tax break – which first became available in 2006 – officially expired December 31, 2011. Now, ATRA revives this tax law provision, retroactive to January 1, 2012. And clients still have a little time to beat the deadline for 2012, even though the year is over.
Under ATRA, a qualified taxpayer can make either of these two elections:
1. Have a distribution made in January 2013 treated as if it had been made on December 31, 2012.
2. Treat any portion of a distribution from an IRA to the taxpayer in December 2012 as a qualified charitable distribution (QCD), as long as that amount is transferred in cash to the charitable organization before February 1, 2013, and the distribution otherwise qualifies.
In other words, a taxpayer has until January 31, 2013, to retroactively benefit from a QCD for the 2012 tax year. This option is available whether or not the taxpayer itemizes deductions.
The IRS says in the new notice that QCDs should be reported on Line 15 of Form 1040, with the full amount of the distribution shown on Line 15a. Don't enter any of these amounts on Line 15b, but instead, write "QCD" next to that line.