McKonomics

New Law Extends IRA Donation Tax Break: Can You Benefit?

There's good news if you've reached age 70 1/2, and you have an IRA and philanthropic inclinations. Through 2011, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 resurrected the opportunity to make cash donations to IRS-approved charities directly out of your IRA.

Such qualified charitable distributions are federal-income-tax-free, but you get no itemized charitable deduction on Form 1040. But that's okay. The tax-free treatment of qualified charitable distributions equates to an immediate 100 percent deduction, since the otherwise-taxable IRA dollars are sent directly to charity.

Here is a detailed explanation of the qualified charitable distribution privilege, which was extended in the latest tax law.

Take Advantage of Business Credits Even if You Didn’t Have Taxable Income in 2010

The general business credit is composed of several different credits which can be used to offset the tax liability imposed on a taxpayer in any given year. Some of the many credits that a taxpayer may take advantage of are: the credit for increasing research activities, low-income housing credit, renewable electricity production credit, biodiesel and renewable diesel fuels credit, and the new hire retention credit. 

Typically, the general business credit is only allowed to offset the income tax liability for a particular tax year, and is subject to an annual limitation based on tax liabilities. Plus, only certain specified credits are allowed to offset part or all of the alternative minimum tax (AMT). Unused general business credits may generally be carried back one year and forward for twenty years. 

New Law Includes Fresh Batch of Favorable Depreciation Changes

 The new Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act includes important depreciation changes for 2011 and 2012 that will benefit both small and large businesses. Even better, the best change is retroactive to the last part of 2010. The depreciation changes made by the new law are layered on top of changes made by last September's Small Business Jobs Act. 

Here is how your business can benefit from the two laws. 

Bonus Depreciation Liberalized and Extended 

The Small Business Jobs Act allows 50 percent first-year bonus depreciation for qualifying new (not used) assets placed in service in calendar year 2010. (Used assets do not qualify.) The new law takes bonus depreciation to a higher level for the last part of 2010 and all of 2011. It also allows 50 percent bonus depreciation for 2012.