After many years of uncertainty, Congress has finally passed the Protecting Americans from Tax Hikes Act (PATH Act), which makes over 20 temporary tax relief provisions permanent, including several charitable incentives. Charities can now strengthen their efforts to promote two popular charitable giving techniques knowing that the tax advantages will be available to donors for the foreseeable future.
IRA Charitable Rollover
Taxpayers with Traditional IRAs are required to take annual distributions from the IRA starting at age 70 ½. These distributions are taxable income to the taxpayer in the year of the distribution. Many of these taxpayers are also making charitable contributions in the same year, which is tax deductible only if the taxpayer itemizes deductions. The IRA Charitable Rollover allows taxpayers to make up to $100,000/year of donations directly from their IRA to charities, which satisfies a portion of the required annual distribution, but excludes the amount donated from the taxpayer’s income. Although the taxpayer doesn’t get a charitable donation deduction, the exclusion of the distribution from income is generally a more advantageous tax benefit. A couple of limitations do exist:
- The donation cannot be made to a donor-advised fund, supporting organization or private foundation.
- The donation cannot come from a SEP or SIMPLE IRA if an employer contribution is made for that tax year.
Food Inventory
When restaurants and other businesses with food inventory donate that inventory to charity, they typically receive a deduction equal to their cost for the food. This tax treatment is no different from a deduction for regular food spoilage where the business disposes of the food as trash. The Enhanced Deduction for Food Inventory made permanent by the PATH Act encourages restaurants to give food inventory to food banks and other charities by increasing the tax deduction to cost plus half of the profit that would have been recognized if the food was sold during the regular course of business.
Learn more about other provisions made permanent by the PATH Act here.
