As of this writing, there are only 26 days left until two incredible charitable giving carriages turn into pumpkins. That’s right, December 31, 2011 will bring the expiration of the IRA charitable rollover option and the Michigan Community Foundation tax credit. Both of these charitable planning options have been responsible for a great amount of charitable giving. It is my hope that their expiration will not cause a drop off in donations, as charities play an incredibly valuable role in our society and economy. Here is some more information on both opportunities:
Michigan Community Foundation Tax Credit
This tax credit offers donors making a contribution to a Michigan Community Foundation a maximum credit of $200 on a gift of $400 for couples filing jointly and a maximum credit of $100 on a gift of $200 for single filers. It also includes the up-to-$5,000 tax credit that businesses can earn for a gift of $10,000. This is the last year for the tax credit. It was eliminated to help balance the Michigan budget.
We have so many great opportunities to take advantage of this credit and increase our giving to Michigan Community Foundations. Where I live in West Michigan we have the Grand Rapids Community Foundation and several of it’s community funds, such as the Southeast Ottawa Community Foundation (of which I’m proud to be a Board member). These Community Foundations are doing incredible things in communities throughout Michigan for things such as education, arts, the environment, and health.
IRA Charitable Rollover Option
Although this giving opportunity has some restrictions on it, it also provides an opportunity to give a far greater amount and getting a far greater tax benefit for it. Why? Because this is a federal income tax benefit and federal taxes tend to be much higher than state taxes – so, each dollar contributed to the charity represents a greater savings to the donor.
The Charitable IRA Rollover was originally scheduled to cease in 2009, but was extended until the end of 2011 by the Tax Act of 2010. What this means is that any taxpayer age 70.5 or older can make tax-free transfers of up to $100,000 per year directly from his or her IRA to one or more charities. These gifts can be made without increasing your taxable income or withholding.
This presents an opportunity for huge savings over the previous method of using IRAs for charitable contributions. Before this direct rollover option, you would need to first take the distribution from your IRA, which would incur income tax, and then make the charitable contribution, which may have qualified for a charitable deduction on your tax return. With the direct rollover option you can greatly increase the impact of your giving because it will be the whole amount, not the tax-reduced amount folks previously gave.
There are some additional restrictions and guidelines, so I encourage to read this article on the topic to find out more.
I do hope you will take advantage of the tax benefits before the clock strikes midnight on December 31, 2011!
Michael Lichterman is an estate planning and business planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™. This goes beyond merely planning for finances – it’s about who your are and what’s important to you. He focuses on estate and asset protection planning for the “experienced” generation, the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses and pet planning. He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients – many of which have become great friends.