Schmidt Blog

Utilize Qualified Charitable Distribution to Maximize Benefit of Charitable Gifts

August 16th, 2018

It’s been estimated that the number of people who itemize deductions will fall by more than half in 2018 because of changes made by the Tax Cuts and Jobs Act. The standard deduction for a joint tax return will increase to $24,000 in 2018. Unless your itemize deductions (state and local taxes up to $10,000, mortgage interest and charity) exceed $24,000 ($12,000 for single filer) then you will not itemize deductions on your 2018 tax return. That may be bad news for many charitable givers, but those who are age 70½ or older can continue to gain a tax benefit from their charitable contributions even if they don’t itemize. The key is to make the gift by way of a qualified charitable distribution (QCD) from your IRA.

Taxpayers must start taking annual required minimum distributions (RMD)from their traditional IRAs by April 1 following the year in which they attain age 70½. Failure to withdraw the annual RMD could expose the taxpayer to a penalty tax equal to 50% of the excess of the amount that should have been withdrawn over the amount actually withdrawn.

Qualified charitable distributions. An annual exclusion from gross income (not to exceed $100,000) is available for otherwise taxable IRA distributions that are given directly from the IRA to a charity. Such distributions aren’t included in gross income, can’t be claimed as a deduction on the taxpayer’s return, and aren’t subject to the general percentage limitations that apply for making charitable contributions.

A qualified charitable distribution is one that is made
1. On or after the IRA owner attained age 70½ and
2. Directly by the IRA trustee to a Code Sec. 170(b)(1)(A) charitable organization Recommendation. Taxpayers interested in using QCDs to reduce their tax bills should defer taking RMDs—or defer taking the entire amount of the RMD—until near the end of the year or whenever else in the year that they know how much they will contribute to charity for the year.

DISCLAIMER
Any tax advice contained in the body of this material was not intended or written to be used, and cannot be used, by the recipient for the purpose of promoting, marketing, or recommending to another party any transaction or matter addressedherein. The preceding information is intended as a general discussion of the subject addressed and is not intended as a formal tax opinion. The recipient should not rely on any information contained herein without performing his or her own research verifying the conclusions reached. The conclusions reached should not be relied upon without an independent, professional analysis of the facts and law applicable to the situation.