The deal that saved America from toppling over that cliff — you know the one — includes a short-lived tax advantage for senior citizens and the charities they support.
Many older Americans have traditional Individual Retirement Accounts, which begin paying benefits at age 701/2. Traditional IRA money is not taxed on the way in, but it’s taxed as it’s paid out. (Roth IRAs are the opposite: Money is taxed before it’s paid in, so it’s tax-free when paid out again.)
But the retroactive American Taxpayer Relief Act of 2012 — which was passed by Congress and signed by the president in the early hours of 2013 — allows older taxpayers to funnel up to $100,000 of traditional IRA distributions directly to qualified charities, tax-free.
Donor-advised funds and private foundations — like the Community Foundation for Southwest Washington — are not eligible.
The money is not considered gross income but does count against the minimum distribution the IRA holder would have to take and pay taxes on. So this is a way for traditional IRA beneficiaries to lower their tax burden and support their favorite charities while they’re at it.
Any such donation made by Jan. 31 can be designated for either tax year 2012 or tax year 2013, as the taxpayer prefers.
“This provides a huge tax advantage for qualified donors, but they have to act quickly,” said Carol Van Natta, president of the Association of Fundraising Professionals of Oregon and Southwest Washington. “This is a timely opportunity for an individual to give through their IRA now and have it still count toward their 2012 charitable giving.”
The law also makes transfers from traditional IRAs to eligible charities tax-free until the end of 2013.
The Community Foundation, though not covered by this law, keeps a close eye on the world of charitable giving, and its president, Richard Melching, had this comment: “Most donors give because of the emotional rewards, but there are also external drivers that encourage some people to give more. The charitable deduction is one. For that reason, our organization is relieved by this legislative compromise.”
Local charitable agencies such as YWCA Clark County are spreading the word. A note about the option is up on the Y’s website.
“We want to make sure our donors are aware of this opportunity,” said Shawna Burkholder, the Y’s director of development and communications. “Are we anticipating it making a huge difference? Not particularly. But it won’t make any difference at all if people don’t know about it.”
Burkholder added that the Y received several big gifts at the end of 2012. “We ended the calendar year on a strong financial note,” she said. “We’re hoping that’s an optimistic sign about the future.”
According to the Community Foundation, nonprofits employ 10 percent of America’s workforce, or 13.5 million people, and pay 9 percent of all wages.