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Blink and you'll miss them: Tax extenders, p. 3

Tax filing season starts on Tuesday, Jan. 20. As you prepare your return, or work with a tax professional to prepare it, don't forget that Congress renewed some important tax deductions and credits before adjourning. We discussed the mortgage debt exception in our last two posts. While that may be one of the most high-profile extenders -- it was a terrific help to underwater homeowners during the financial crisis -- there are others that deserve a little attention.

IRA charitable rollover: Many of the extenders are designed to help taxpayers who are in financial distress. The IRA charitable rollover should help people with a little extra cash who would rather see their money go to good causes than to the IRS.

If you have an Individual Retirement Arrangement, you probably know that the IRS treats distributions from the IRA as taxable income. This is something you and your estate planning attorney have factored in to your retirement planning.

Most IRA account holders understand that there is a penalty for withdrawing funds before age 59 1/2. After that, they can withdraw funds or arrange for periodic distributions or even just let the balance build -- until they reach age 70 1/2.

By law, account holders must start to deplete their IRAs at age 70 1/2. It cannot be put off another minute. Those distributions are taxable, even if the account holder doesn't want the money: The federal government forces the account holder to withdraw the money, then forces her to pay taxes on it. It hardly seems fair.

The charitable rollover offers account holders a way to put that money to good use without suffering the tax obligation. All the account holder has to do is to donate that money to a qualifying charity. The money must be transferred directly from the IRA to the charity -- the account holder cannot be the middle man -- and the total amount cannot exceed $100,000 a year.

Not done yet! There are a couple more that merit discussion. We will get into those in our next post.

Sources:

Forbes, " 2014," Kelly Phillips Erb, Nov. 24, 2014

Independent Sector, "IRA Charitable Rollover," accessed online Jan. 17, 2015

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