Many senior citizens pay no mortgage interest and do not have enough deductions in order to itemize. So, typically, they would receive no tax benefit from their charitable contributions.
Again in 2011 there is a little-known tax planning tip involving charitable contributions for people over 70 1/2 years old. Those over 70 1/2 years old can direct part or all of their required minimum IRA distribution (up to $100,000) directly to a charity, tax-free. Even though they are not itemizing their deductions, they will reap the tax benefit of not reporting the donated distribution as income.
The donation must be distributed directly by the IRA trustee to an eligible IRS-approved charity. (The list of such organizations can be found here). If both you and your spouse have IRAs, each of you is entitled to a separate $100,000 limit, for a combined total of $200,000.
This strategy could have other potential tax-saving benefits. The qualified donation is not included in your adjusted gross income (AGI), which lowers the odds that you will be affected by various unfavorable AGI-based rules - such as those that can cause more of your Social Security benefits to be taxed. This donation is exempt from the rule that says your itemized charitable write-offs for the year cannot exceed 50% of AGI. If your IRA has a combination of deductible and nondeductible contributions over the years, any qualified donation is treated as coming directly from the taxable portion. The nontaxable amounts are left behind in your IRA and can be withdrawn tax-free by you or your heirs in the future. Finally, these qualified donations reduce your taxable estate.
This is a valuable tax and estate planning tool for at least 2011 as there is no guarantee that this benefit will be renewed in future years.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).
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