Following the post-COVID stimulus hangover in 2022, the bull market has continued to run. One of the key factors was the Federal Reserve’s decision to
The PATH Leads to Permanent Tax Benefits
Published Date : January 21, 2016
Protecting Americans from Tax Hikes Act of 2015 Signed into Law
Very rarely big changes sweep the landscape of financial planning but when they do taxpayers are sometimes awarded significant benefit from the change. On December 18, 2015, the Protecting Americans from Tax Hikes (PATH) Act was signed into law. The Act does considerably more than the typical tax extender legislation seen in prior years. Unlike past tax extender legislation, this time many provisions are permanently renewed. It makes permanent over 20 key tax provisions and extends the life of other provisions from two to five years.
Within the PATH act, there is an important change that makes permanent the provision allowing for tax-free charitable gifts to be made directly from an IRA. If you are 70 ½ years of age or older, you can make these gifts from your IRA to your favorite qualified charity or charities in any amount up to a total of $100,000 per person per year. Spouses with separate IRAs can also distribute up to $100,000 for a combined total of $200,000. The transferred amount counts toward your required minimum distribution for the year and is excluded from your taxable income.
As with previous IRA charitable rollover legislation, contributions need to be made directly from your traditional or Roth IRA account. If your IRA distribution is deposited into your personal checking or savings account, this disqualifies the gift under the provision and the distribution will be taxed.
The tax benefits of the IRA Charitable Rollover are available to taxpayers regardless of whether they itemize their returns. In particular, this helps older Americans who may have paid off their home mortgage and no longer file itemized tax returns. The mandatory distribution from their IRA would otherwise trigger a tax burden, even if they donate the money to charity. The IRA rollover provision removes these negative tax consequences and encourages Americans to give back to their communities during their lifetime.
Individuals with high adjusted gross income (AGI) will not need to count this gift towards the tax exempt gift limit calculation for an allowable gift based on AGI. With this provision, you can gift over and above your tax exempt limit of 50% or 30% of your AGI. Additionally, if your income level causes you to be phased out of exemptions this is an attractive way to make gifts you may or may not have already been inclined to make and benefit from a significant tax benefit.
If you are charitably minded, this is an efficient way to make gifts with funds that you are required to take anyway and would otherwise be subject to income tax. Knowing this is a permanent provision allows for regular strategic planning around your distributions and charitable giving. Your wealth manager will review your gifting strategy with you in the coming year to ensure that you are giving to the causes you care most about. Along with your tax advisor, we’ll help you plan your giving strategy in the most tax advantageous way available to you.
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