Tax Breaks 2011; Charitable Contributions From Individual Retirement Account(ira)

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Uncle Sam is throwing our Senior Citizens a bone this year. If you are 70 years old, or older, the tax bill that was enacted as of December 17th could possibly benefit you. A popular tax break, which is available to those who make a charitable contribution from their IRA account, is in place for 2011. Also, individuals that qualify for this tax break can use it for 2010 if they make a donation by January 31, 2011. This was made possible due to the fact that the law was enacted so late. However, if you took a mandatory IRA withdrawal in 2010, you can't retroactively claim this tax break for that money.

Under the new tax law, anyone who is 70 or older can donate up to $100,000 a year to one or more charities from their IRA account. The donation will then count as a withdrawal that is required each year for those that fall in the age bracket. The donor will receive no tax deduction for the IRA withdrawal BUT they do not have to report it as taxable income.

To gain a better understanding how this can benefit those that qualify, let us consider the following example;

Assume you fall in the 25% tax bracket. Now, consider what would happen with a $10,000 donation to the charity of your choice. If you don't itemize your deductions, you would normally get no tax break for the gift but under the new law, the $10,000 will not be included in your income. This would save you $2,500.

If you do itemize you will not qualify for an deduction. The $10,000 can still be deducted from taxable income which may help you keep your adjusted gross income below the threshold in which you would lose some of your deductions and other tax benefits based on income or become subject to higher Medicare premiums and taxes on your Social Security benefits.

The new tax law does not restrict the source of the donation from only an IRA account. Charitable donations from a SEP (Self Employed Plan) or Simple IRA also qualify as long as no contribution was made to the account within the year of the gift. Additionally, those that make donations through a 401(k) CANNOT take advantage of the provision since withdrawals from Roth IRA"s are already tax free.

Note: Some states don't allow residents to take deductions for charitable gifts on their state income-tax returns. Residents of these states are subject to pay state income tax on the donation from an IRA

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