Year-End Tax Advice: Essential 2013 Knowledge

Editor's Note: This article is part of our 2013 Tax Tips series. Robert Flach is an expert with almost 40 years of experience as a tax professional and also blogs as The Wandering Tax Pro.

NEW YORK (MainStreet) — Do you have to take a required minimum distribution (RMD) from your IRA account this year, but have yet to do so?

Taxpayers age 70½ and older can directly transfer up to $100,000 tax-free from an IRA account to a charity. This charitable transfer can be used to satisfy your required minimum distribution for the tax year.

Ely Mosynary, age 72, must take a fully taxable required minimum distribution of $4,263 from his IRA. Mosynary also owes $5,000 on a pledge to the Visual Art Center of New Jersey building fund. He can contact the trustee of his IRA account and request that $5,000 be sent directly from his account to the Visual Art Center of New Jersey to cover both his required minimum IRA distribution for 2013 and his outstanding pledge. The $5,000 is not reported as income on his Form 1040, but he cannot deduct the $5,000 as a charitable contribution on his Schedule A.

If Mosynary received the $4,263 from his IRA and then donated $5,000 to the Art Center, he would have to claim the distribution as gross income on Page 1 of his Form 1040 and claim a charitable deduction on Schedule A. The $4,263 distribution would increase his Adjusted Gross Income (AGI) and could, as a result, increase the taxable portion of his Social Security or Railroad Retirement benefits by as much as $3,624, reduce his medical and miscellaneous itemized deductions by up to $405 and reduce or eliminate a number of other deductions and credits that are affected by AGI.

Now the $5,000 IRA transfer is tax-free and does not increase his AGI. Plus the additional $737 represents a tax-free withdrawal from his IRA.