Making a charitable contribution from your IRA not only allows you to support a good cause, it also offers tax advantages. In the last few years, the IRS did not count IRA distributions for charitable contributions as income, and distributions were tax-free. The law allowing that expired Dec. 31, 2011. The current law requires you to itemize your tax return to receive a deduction for your charitable contribution. You must pay income tax on the distribution. Legislation regarding IRA charitable contributions changes frequently. Understanding the rules on charitable giving from your IRA can help you avoid tax penalties.
Identify the charity you desire to help. It must qualify as a tax-exempt organization under IRS rules. Common qualified charities include churches, religious organizations, nonprofit schools and hospitals, and public parks and recreation facilities. Prohibited organizations include political groups, civic leagues, homeowners’ associations and groups operated for personal profit.Step 2
Request a distribution from your IRA through the brokerage that holds your IRA. You must pay federal income tax on distributions from a traditional IRA, but Roth IRA distributions are tax-free. A charitable contribution can satisfy the required minimum distribution that an individual must take from a traditional IRA at age 70 1/2.Step 3
Instruct your IRA trustee to send the donation directly to the charity. Contact the charity to receive documentation that details the amount you donated. The IRS requires you to keep documentation of your charitable giving. Failing to keep documentation can lead to problems if you are audited.Step 4
Declare the distribution as income on your next tax return. The law requires you to report distributions on Form 1040 and pay federal income tax. Your adjusted gross income might increase because of the distribution. This increase can be significant if you desire to take other tax deductions or credits that use your adjusted gross income as eligibility criteria.Step 5
Report the charitable donation when completing your tax return. Complete line 16 of Schedule A to report your charitable contribution. The deduction offsets your taxable income. The IRS prohibits you from claiming a deduction that exceeds 50 percent of your adjusted gross income.
Items you will need
- IRS Form 1040
- You cannot deduct the part of a contribution for which you received a direct benefit.
- You must pay an early-distribution tax penalty if you make the contribution from your IRA before age 59 1/2.
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