Several special rules were included in the fiscal-cliff legislation to enable taxpayers to have a donation - made before Feb. 1, 2013 - treated as a 2012 qualified donation, says Julia Fisher, wealth adviser and managing director at JPMorgan in Philadelphia.
"Congress has effectively extended giving season into January, thanks to the American Taxpayer Relief Act. So the time frame for direct rollovers from IRAs to charities has been extended until Jan. 31," she said, "and it's a good way to vaporize income" that otherwise would be taxed.
Let's say you are an individual age 70½ who wants to make a donation paid directly from your IRA to a charity of your choosing. Usually, the "giving season" ends Dec. 31, when the tax year ends. But not this year. Congress has extended it for 2012 and 2013. And in the rollover are two time-sensitive transition provisions that expire at the end of January.
How it works
IRA owners should keep records to substantiate the timing of contributions and distributions regarding any 2012 donations made in January 2013, says Michael S. Jackson, a partner in tax services at Grant Thornton L.L.P. in Philadelphia. To take advantage of the retroactive deal, you have two options.
Option 1: You can choose to treat up to $100,000 of charitable donations made from your IRA during this month (January 2013) as having been made in 2012, and enjoy a mandated distribution that is not taxable. The money must be distributed directly by the IRA trustee to a charity approved by the Internal Revenue Service.
The trustee can send you a check made payable to an eligible charity, and you can then forward it to the charity. However, if a distribution check is made out to you personally, you cannot treat the payout as a tax-favored donation.
Option 2: You can contribute up to $100,000 of IRA distributions that were paid to you last month (December 2012) to approved charities and then treat those distributions as 2012 donations. However, to take advantage of this option, you must transfer the money to one or more eligible charities no later than Jan. 31. It is OK to have taken some December IRA distributions to satisfy your IRA-required minimum distribution obligation for last year.
Whether you take advantage of these retroactive 2012 options or not, you can take up to another $100,000 worth of donations this year and treat them as being made for the 2013 tax year. As such, they will count toward meeting your 2013 required minimum distribution obligation.
Erin E. Arvedlund is a financial reporter in Philadelphia. Contact her at email@example.com