The American Taxpayer Relief Act of 2012 (2012 Taxpayer Relief Act) extends through 2013 the provision which allows individuals who are at least 70½ by the end of the year to exclude from gross income qualified charitable distributions up to $100,000 from a traditional or Roth IRA that would otherwise be included in income. Married individuals filing a joint return are allowed to exclude a maximum of $200,000 for these distributions ($100,000 per individual IRA owner).
Congress waited until it was too late to make a 2012 qualified charitable distribution before extending the benefit, so it provided two forms of relief. First, you may elect to treat a qualified charitable distribution made in January of 2013 as having been made on December 31, 2012. Second, you may treat any portion of a distribution made in December 2012 as a qualified charitable distribution if it is transferred to a qualified charity in January of 2013. When these relief provisions are properly executed, the distribution made or transferred in January 2013 counts toward the $100,000 exclusion limitation and the required minimum distribution for the 2012 calendar year.
A review of your tax return indicates that you may be eligible to take advantage of these opportunities. As you may know, IRA owners must either withdraw the entire balance or start receiving periodic distributions from their traditional IRAs by April 1 of the year following the year in which they reach age 70-½. The minimum distribution that is required each year is computed by dividing the IRA account balance as of the close of business on December 31 of the preceding year by the applicable life expectancy. An IRA owner who does not make the required withdrawals may be subject to a 50-percent excise tax on the amount not withdrawn.
Many taxpayers like you, who receive taxable distributions, also contribute to charitable organizations. You can reduce your taxable income by excluding up to $100,000 of your IRA distribution from gross income when you transfer it directly to a charitable organization. This exclusion is available for taxable Roth IRA distributions as well as minimum required distributions from a traditional IRA.
Although a charitable contribution may be motivated by humanitarian reasons rather than by tax considerations, it is, nevertheless, wise to take tax considerations into account when making a contribution. Since this distribution must be made by the IRA trustee directly to a qualified (i.e., 50-percent) charitable organization, you should review your charitable tax giving as soon as possible. Please call our office at your earliest convenience to discuss this option.