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When Should I Make a Donation?

Question: We plan to give a portion of this year’s Required Minimum Distribution directly to our church to fulfill our 2012 pledge. If we receive the money by check in 2011, when do we need to make the donation for the maximum tax advantage?

–Reader in Monument, CO.

Answer: You must give the money this year. Plus, the donation year may be much more important to you than the pledge year. Many non-profit or religious organizations run fiscal years that end in June. Moreover, as a cash basis taxpayer, you can not direct the IRA trustee to make a payment in 2011 and take a corresponding income tax deduction in 2012.

A cash basis taxpayer may only deduct the payment for the year it was made, says Susan W. O’Donnell, a senior vice-president and trust advisor at The Bryn Mawr Trust Co. in Bryn Mawr, PA.

But, thanks to a law which expires on Jan. 1, 2012, you don’t have to worry about deductions. Until then, taxpayers can make contributions to certain charitable organizations directly from an IRA have the distribution excluded entirely from gross income. In this case, O’Donnell says, you can give up to $100,000 from the IRA as a qualified charitable distribution.

The requirements to qualify for the income exclusion are:

  1. The distribution is made directly to a public charity. The distribution does not qualify if made to a supporting organization or donor-advised fund.  The distribution also does not qualify if made to the IRA owner, who then makes the payment to the public charity.
  2. The distribution is made on or after the date that the owner of the IRA has attained age 70.5.
  3. The rest of the distribution would be counted towards gross income.
  4. Except for the special income exclusion, a deduction for the entire distribution would have otherwise been allowable as a charitable contribution.

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Comments (2 of 2)

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    • In the UK, some companies offer non-advice term acursanse where you can get a maximum sum assured of a350,000, payable in the event of death.There are also IPP’s which are Income Protection Plans, which would pay your family a monthly sum if you were out of work due to accident/sickness, however, they would cease upon death.To be honest, the best option, when you are in a position to do so, would be to take out a regular savings plan preferably a tax free one and have it written in trust for whoever you wish to benefit.Hope this helps.

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