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I inherited an annuity and would like to donate 10% or $100,000 to charity. I am 65 years old. Do I have to pay taxes on the donated amount? If so, would it be possible to setup a trust to avoid taxes?


Expert Charles Randall's Answer:

Your question is a good one and has a lot of moving parts and is dependent on many factors. Is the annuity qualified or non-qualified ( IRA is qualified)? If non-qualified, what is the cost basis in the hands of the deceased? That will become your cost basis. Is your income greater than $200,000 and you do not have other charitable donations? In a perfect situation, you include the $100,000 in your income from the distribution of the annuity and include the $100,000 as an itemized deduction resulting in a wash. No additional tax. If the annuity is qualified, you can have a specially coded distribution where the payment goes directly to the charity resulting again in no tax. Where this strategy get complicated is where your income is too low and you have exceed the charitable contribution limit of 50% of adjusted gross income. Part of the contribution is not eligible to writ off in the current year then is carried over to a future year. However, the distribution is still taxable and does not get prorated. The strategy of using a trust has some possibilities. There are 2 general types of trust that are useful in charitable giving but both come with strings attached either for you or for the charity. The strings are you do not get a full tax deduction in the year of the giving or the charity does not get use of the full gift. If you want more information, schedule a video conference and we can discuss further.

Charles Randall, CPA

New York

39 yrs experience

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