It’s the time of year when many people make charitable gifts. For 2007, there is a special tax benefit for people who have IRAs and have reached the age where they must make annual withdrawals (generally a little older than 70½). Those people may donate up to $100,000 from the IRA directly to a public charity without having to count the withdrawal as taxable income on either their federal or Massachusetts income tax returns. Normally, a donor would have to withdraw the money from the IRA, make the charitable gift from his or her own bank account, report the withdrawal as income, and then take a charitable deduction. Under this special program, the withdrawal effectively is not considered income in the first place, which results in a larger net tax benefit for the donor. Because Massachusetts has no charitable deduction for its income tax, this is a rare opportunity to reduce state income tax using charitable gifts.
In addition, even people who have maxed out their federal charitable deduction (due to their past charitable giving) will get a tax benefit from this technique because the charitable deduction need not be applied in order to realize the savings. Finally, the charitable gift will also satisfy all or part of the donor’s required minimum distribution for 2007. The gift must be made to a public charity in order to qualify, and not to a private foundation or donor-advised fund.
Anyone interested in such a gift should be sure to consult his or her tax advisor to ensure eligibility and to use the correct mechanics in requesting the distribution. The gift must be made in 2007 to qualify.
Courtesy of Hemenway & Barnes
60 State Street, Boston, MA 02109
