On December 17, 2010, President Obama signed into law a tax bill that affects everyone who has U.S. income. But what does it mean? Some of the provisions are important for me-and you-as we figure out how to support PETA in the most efficient way. So let’s take a moment to review how to save more animals by having less money go to the IRS. Here’s a cheat sheet.
Charitable IRA Rollover: If you are 70 ½ or older, you are required to take distributions from your standard IRA, even if you don’t need the money for living expenses. And anytime that you withdraw funds from an IRA, income taxes must be paid on those distributions. Many of us would prefer to have our IRAs help animals without having to pay taxes, so we’ve made PETA the beneficiary. But that doesn’t take effect until we die. Now, for the tax years 2010 and 2011, people who are 70 ½ or older can make a direct transfer to PETA of up to $100,000 per year before death, without paying any taxes. This is a very good deal.
You can count transfers made in January 2011 for the 2010 tax year and make a separate contribution for 2011. Charitable rollovers can be used to satisfy the minimum required distributions from your IRAs (but aren’t limited to that) and can lower the balance that will be used to compute future required distributions. Heads up: To make sure the transfer is fully tax-free, have the funds sent directly to PETA and not to the IRA owner or other individual first.
Income Tax: You may have heard that the low income tax rates of the last few years have been extended through 2012, but how does that affect your donations? If you itemize deductions on your tax return, gifts to PETA may lower your federal tax by the percentage of your tax bracket. For example, if you are in the 25 percent tax bracket, contributing $1,000 to PETA would lower your taxes by $250, depending on other factors of your tax return. There are some limitations. For example, in any one year, you can’t deduct more than half your income for cash donations to charities.
Capital Gains: For people in the 25 percent income tax bracket and above, the federal tax on capital gains is 15 percent. Transfers to PETA of stocks or other appreciated assets are fully deductible for their fair market value when donated and exempt from capital gains taxes. This is also another very good deal. So if you want to donate stocks or other assets that have increased in value, transfer them directly to PETA in order to skip the taxes instead of selling the stocks first. If you want to contribute funds from assets that have decreased in value since you bought them, sell first so that you can deduct the losses on your tax return, then donate the proceeds in cash.
Estate Tax: This has now been combined with the gift tax and generation-skipping tax, with a $5 million exemption per person ($10 million per married couple). If that exemption doesn’t cover your assets, call us! In any case, donations made to PETA bypass estate taxes altogether. For example, if PETA is the beneficiary of your IRA or life-insurance policy, the proceeds will go directly to PETA upon your death, without being subject to any income taxes or estate taxes regardless of the size of the donation or of your total estate.
Whatever your situation is, it’s a good idea to check with your tax advisor to see how the new law impacts your finances and charitable donations. For more information on how to support PETA’s work to help animals, please contact us at [email protected] or call Tim Enstice, director of planned giving, at 757-962-8213.
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