John R. Bullis: A charitable tax break for some IRA owners
October 10, 2016
You have probably heard about the option (choice) IRA owners who are age 70 1/2 or older have about sending their IRA distribution (or part of it) to a charity or church.
The total limit each year for the IRA distribution(s) paid directly to charities is $100,000.
That transfer (distribution) counts against your required minimum distribution. Suppose your required minimum distribution for 2016 is $8,000. You could choose to have part or all of it paid to the charity or church of your choice. If you elected to have $3,000 paid to the charity that way then you still need to take $5,000, the rest of the required amount.
The $5,000 you receive is taxable as an IRA distribution. The $3,000 is not taxable on your return and you do not get to claim the $3,000 as an itemized deduction for gifts to charities.
However, your total income on page 1 of form 1040 will not include the $3,000 distribution to charity. That might avoid a Medicare surcharge and in certain instances it might make your taxable social security benefits a little less taxable.
If you have already taken your 2016 required minimum distribution from your IRA(s), maybe you could consider planning to use this tax break in 2017?
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Of course, there is a need to contact the custodian(holder) of your IRA. They will provide you with a form to designate which church or charity you choose and the amount you want to give. It is necessary to get that paperwork done a little bit early. More folks are using this tax break each year.
If you have more than one IRA, remember the required minimum distribution is figured on the total value of the IRA accounts at the preceding Dec. 31. But you can take the total required minimum distribution from just one IRA if that is your desire. Some folks have simplified their holdings and reduced the paperwork they receive by closing out the smallest IRA by taking the annual full distribution from that IRA until it is closed out.
The folks that seem to benefit the most from this tax break are those that do not itemized deductions on Schedule A of form 1040. The gifts they make to charities do not save them any income tax because they use the standard deduction instead. By making their gifts to charities from their IRA(s), they give the same amount, but their total and taxable incomes are reduced.
Did you hear? "Taxpayer: a person who has the government on his payroll," by Anonymous.
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.