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With the passage of the American Taxpayer Relief Act of 2012, Congress extended for 2013 the option for IRA owners over the age of 70½ to make tax-free distributions from an IRA, if those funds are directed to a qualified charity. However, time is running out to take advantage of a new retroactive provision that applies to tax year 2012. This special “transition” rule allows IRA owners who took a distribution in December 2012 to avoid taxes on that distribution (or a portion) by retroactively directing those funds to a qualified charity. But taxpayers have to write the check directly to the qualified charity before February 1, 2013, in order to take advantage of this provision.

The sum donated to the charity does not have to be the full amount of the IRA distribution. For example, assume a client took an RMD in December 2012 from his or her IRA in the amount of $20,000. The client could write a check to a qualified charity, before February 1, 2013, for $15,000, avoid taxes on the amount, and then pay taxes on the $5,000 difference. Note that the annual maximum to be directed to a charity tax-free is $100,000.

With the deadline right around the corner, it is a good time to get in touch with clients who may be able to benefit from the retroactive provision. It can also give you and your clients an early start to tax planning, with a review of the fiscal cliff deal and additional tax provisions and implications for the year ahead.