The "Poor Person's" Tax Avoidance Scheme
Are you seventy-and-a-half years old and receiving a required minimum distribution (“RMD”) from your traditional IRA account subject to tax? If you have not reached that age, is there still a reason why you should care? We have an idea for you that can help FAIRtax. Please, however, consult your tax attorney and accounting professional before deciding if this strategy is right for you.
Under current tax statutes, you can put a certain amount of your income into a traditional IRA. Money deposited into an IRA is not counted as taxable income. You don’t pay tax on that money until it is withdrawn in retirement. (Roth IRAs are different and beyond the scope of this article.)
You may start withdrawing from your IRA when you reach age fifty-nine and a half. However, you MUST begin withdrawing money (and paying taxes) when you reach seventy and a half. If you don’t start taking your money by then, you must pay a penalty. The amount of your annual Required Minimum Distribution depends on your IRA balance and your age.
Fortunately, there is a way to withdraw money from your IRA that meets your Required Minimum Distribution requirement, but also carries no tax liability.
In 2020, about 87% of American taxpayers took the standard deduction. For 2023, the standard deduction is $27,700 for married taxpayers filing jointly. Since they didn’t itemize their deductions, that 87% were not able to deduct their charitable contributions.
However, there’s a loophole in the law that allows you to make a charitable contribution using money from your IRA. You can instruct your IRA custodian (ask your IRA administrator or tax advisor who this is) to send a distribution from your IRA directly to a qualified charitable organization under Section 501(c)(3) of the Internal Revenue Code.
That distribution will count toward meeting your Required Minimum Distribution, but since it’s going to a qualified tax-exempt organization, there is no tax due on that withdrawal. Just be sure that the money goes directly to the organization. It can’t come to you first, even if you turn around and send it to the charitable organization.
Is there a charitable organization that can benefit FAIRtax? Yes, there is. The National Tax Research Committee (“NTRC”) qualifies as a tax-exempt organization under Section 501(c)(3). Its Board of Directors consists of our President, Steve Hayes, his wife, who keeps our FAIRtax books, Paula Hayes, CPA, and our board member, John Grafer.
The downside to contributing to NTRC is that NTRC cannot expressly advocate for the FAIRtax. However, it can do research into the benefits of taxing consumption vs. taxing income. If for example, we need a research project to determine what the FAIRtax rate must be in today’s economy to remain revenue-neutral vs. the income tax, NTRC can fund that project for us if it has the money. Since NTRC is a qualified tax-exempt organization under Section 501(c)(3), you can contribute to it with a tax free distribution from your IRA.
You can instruct your IRA custodian to send a distribution to the “National Tax Research Committee” at PO Box 4929, Clearwater FL 33758-4929, the same address as Americans for Fair Taxation. Encourage your friends who itemize and are charitably inclined to contribute there, too.
We still need non-deductible financial support for Americans for Fair Taxation to cover our recurring expenses for database, email, insurance, legal registrations, website, and audit. Please remember that AFFT is run entirely by volunteers. So, if you cannot make a tax-deductible contribution, please continue to support AFFT. We put your money to work wisely.
I would love to hear your ideas on how to support FAIRtax tax-efficiently.
Under current tax statutes, you can put a certain amount of your income into a traditional IRA. Money deposited into an IRA is not counted as taxable income. You don’t pay tax on that money until it is withdrawn in retirement. (Roth IRAs are different and beyond the scope of this article.)
You may start withdrawing from your IRA when you reach age fifty-nine and a half. However, you MUST begin withdrawing money (and paying taxes) when you reach seventy and a half. If you don’t start taking your money by then, you must pay a penalty. The amount of your annual Required Minimum Distribution depends on your IRA balance and your age.
Fortunately, there is a way to withdraw money from your IRA that meets your Required Minimum Distribution requirement, but also carries no tax liability.
In 2020, about 87% of American taxpayers took the standard deduction. For 2023, the standard deduction is $27,700 for married taxpayers filing jointly. Since they didn’t itemize their deductions, that 87% were not able to deduct their charitable contributions.
However, there’s a loophole in the law that allows you to make a charitable contribution using money from your IRA. You can instruct your IRA custodian (ask your IRA administrator or tax advisor who this is) to send a distribution from your IRA directly to a qualified charitable organization under Section 501(c)(3) of the Internal Revenue Code.
That distribution will count toward meeting your Required Minimum Distribution, but since it’s going to a qualified tax-exempt organization, there is no tax due on that withdrawal. Just be sure that the money goes directly to the organization. It can’t come to you first, even if you turn around and send it to the charitable organization.
Is there a charitable organization that can benefit FAIRtax? Yes, there is. The National Tax Research Committee (“NTRC”) qualifies as a tax-exempt organization under Section 501(c)(3). Its Board of Directors consists of our President, Steve Hayes, his wife, who keeps our FAIRtax books, Paula Hayes, CPA, and our board member, John Grafer.
The downside to contributing to NTRC is that NTRC cannot expressly advocate for the FAIRtax. However, it can do research into the benefits of taxing consumption vs. taxing income. If for example, we need a research project to determine what the FAIRtax rate must be in today’s economy to remain revenue-neutral vs. the income tax, NTRC can fund that project for us if it has the money. Since NTRC is a qualified tax-exempt organization under Section 501(c)(3), you can contribute to it with a tax free distribution from your IRA.
You can instruct your IRA custodian to send a distribution to the “National Tax Research Committee” at PO Box 4929, Clearwater FL 33758-4929, the same address as Americans for Fair Taxation. Encourage your friends who itemize and are charitably inclined to contribute there, too.
We still need non-deductible financial support for Americans for Fair Taxation to cover our recurring expenses for database, email, insurance, legal registrations, website, and audit. Please remember that AFFT is run entirely by volunteers. So, if you cannot make a tax-deductible contribution, please continue to support AFFT. We put your money to work wisely.
I would love to hear your ideas on how to support FAIRtax tax-efficiently.
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CALL FOR PICTURES AND WRITEUPS
We need more of you to send in pictures and news. If you have something to share, please send your material to me, jim.bennett@fairtax.org, (908) 578-4975, or fax (908) 598-2888. When others see your activity, they are inspired, and the process snowballs. When the process snowballs, Congress Members, Senators, and even the President start to listen.
CALL FOR PICTURES AND WRITEUPS
We need more of you to send in pictures and news. If you have something to share, please send your material to me, jim.bennett@fairtax.org, (908) 578-4975, or fax (908) 598-2888. When others see your activity, they are inspired, and the process snowballs. When the process snowballs, Congress Members, Senators, and even the President start to listen.
Jim Bennett
AFFT Grassroots Coordinator & Secretary🇺🇸 Call For Pictures & WriteUps - When others see your activity, they are inspired, the process snowballs and Representatives, Senators and, yes, even the President start to listen to you and me. Please send your material to me at Jim.Bennett@FAIRtax.org.
🇺🇸 The Official FAIRtax Store - Don’t forget to order your FAIRtax gear from the FAIRtax Store.🇺🇸 We've Got You Covered, If You Let Us Know - If you are planning an event, we have event insurance coverage available for you. Email me the "who-what-where-when" and I will obtain for you a COI. Once the event is underway, it's too late.