Last Call for Year End Giving

Anyone observing the legislative debates of the lame duck session of the 111th Congress must have wondered what good can come from this.  Nonetheless, many of us in the charitable sector were watching closely the outcomes of the debate on tax policy, especially with regard to the estate tax and other legislated provisions in the tax laws that would “sunset” at year end.  The estate tax had previously been allowed to expire and its renewal to languish, leaving estate planners to scratch their heads and caustically wonder, is it better to plan for one’s demise in 2010 or in 2011?

Grassy Waters Preserve, December Day

Much hinged for heirs and tax collectors alike on the outcome of the estate tax renewal and the ultimate form it took.  Congress removed these and other unpleasant ambiguities, for better or for worse, at least temporarily, for the next couple of years. At midnight last Thursday, approval was given to a tax bill that included $801 billion package of tax cuts, including renewal of a new version of the estate tax. The bill also provided $57 billion in extended unemployment insurance for the jobless. The bill had previously passed muster with the Senate after extensive debate.

Since I am neither a lawyer, nor an accountant, I’ll refrain from commenting on the details of the probable benefits to individuals. There are many trusted professional advisors who can provide expert counsel and who are practiced in the discernment of how such sweeping changes are likely to affect the economics of family and business.

However, of several key provisions affecting individual taxpayers, there is one especially worthy of note for the philanthropically-minded that makes for tax-smart philanthropy. It is the extension of two years (through 2011) of tax-free distributions from individual retirement plans (IRA) for charitable purposes, in an amount of up to $100,000 per taxpayer, per taxable year. The bill allows individuals to make charitable transfers during January of 2011 and treat them as if made during 2010. This allowance of time makes the last call in 2010 for charitable giving wonderfully inviting. Individuals have both flexibility and the additional time to make a thoughtful decision and appropriately accomplish the task.

So what is an IRA charitable rollover?  The term “qualified charitable distribution” is used in the provision to describe an IRA charitable rollover. A qualified charitable distribution is money that individuals who are 70½ or older may direct from their traditional IRA account to eligible charitable organizations. Individuals may exclude the amount distributed directly to an eligible charity from their gross income.

This provision is still time-limited, however. It will apply only to qualified distributions made before January 1, 2012. The extended timeline can thus be of particular benefit to donors who would like to take advantage of the rollover in both 2010 and 2011. Or, alternatively, if you just want to do this for the current tax year, you still have time but you need to complete the transaction by January 31, 2011.

With the clock fast running out on 2010 tax year, Congress understood that the extension of the IRA charitable rollover provision would not be practicable unless some extra allowance of time were made to accommodate the steps necessary to qualify for the rollover benefit in the current tax year.

The majority of contributions to public charities — other than supporting organizations—are considered by IRS as qualified charitable contributions. This is an area where a little homework will serve you well to insure the gifts to charities appropriately qualify. However, the really good news is that distributions to almost all types of funds typically held by the Community Foundation for Palm Beach and Martin Counties — such as scholarship, field-of-interest, and designated funds — qualify.

The exception to this general statement is donor advised funds since, under the special IRA roll over rules, distributions to donor advised funds do not count as qualified distributions from IRAs. Other fine print also applies to donor advised funds. So it is always wise to proceed with caution and seek professional guidance on how the roll-over opportunity fits with your unique circumstances.  As your Community Foundation, we are here to serve as your partner, promote philanthropy and invest in our communities. When you consider your opportunities for charitable giving, just know tax-smart philanthropy is a companion benefit to doing well by doing good.

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