Taxes – EdwardWLong.com

Taxes

Protect your year-end donation deductions

A Q&A to help you protect your year-end charitable deductions

Question #1: You use your credit card to donate to a qualified charity on December 31 this year. You don’t pay the credit card bill until January next year. For which year do you get to take the charitable contribution deduction on your federal (IRS) income taxes? Of course, you’ll only get an charitable donation deduction if you itemize deductions on your return.

Answer: Donations charged to a credit card before the end of the year count for that year. This is true even if the credit card bill isn’t paid until the next year. In other words, credit card contributions are deductible in the year the charge is entered into the system. The timing is easy to prove — you use the date on the credit card slip or receipt. Be sure the slip or receipt shows the December date (sometimes credit card charges don’t get processed right away, and your statement might show a January date for the charge).

Question #2: Instead of using a credit card, you use your bank debit card or PayPal account (that draws directly from your bank account) to make the December 31 donation. Your bank statement doesn’t show up until January. For which year do you get to take the contribution deduction? Of course, you’ll only get an charitable donation deduction if you itemize deductions on your return. More . . .

Tax-free IRA donations to charity back indefinitely

Give and Grin. If you are age 70½ (70.5) or older you can donate from your IRA directly to the qualified organization (see below) of your choice — tax-free! This special IRA donation rule allows you to give up to $100,000 in a calendar year. We call this the “Grin and Give Rule.”

Normally, when you take money out of your IRA, that money is taxable income to you. That’s fine, you say, you’ll just turn around and spend the money on your mortgage or give it to a charity — and get an offsetting deduction. But you might not get all or part of that deduction if, for example, you use the standard deduction or you itemize and your deductions get caught up in the phase-out rules.

Under the Grin and Give Rule, the money taken from the IRA is not taxable income to you.

And you don’t have to worry about whether you use the standard deduction, itemize or face other deduction limits.
Actually, if you were going to make a charitable deduction anyway, using the Grin and Give Rule could help you protect your other itemized deductions, and even save taxes on your social security.
And, of course, the charity doesn’t have to pay any tax either.

In other words, turning your IRA distribution into an IRA donation makes your IRA distribution tax-free! More . . .