01 Nov Tax Wise Charitable Giving from IRAs
The Tax Cuts and Jobs Act of 2017 reduced the number of people who itemize deductions on their tax returns. Folks who used to itemize and gave to charity who no longer itemize due to the increased standard deduction lost the tax advantage of charitable donations. However, there is still a great way for people over 70 ½ to give to charity and reduce their tax bill and it involves making donations directly from your IRA.
Qualified Charitable Donations (QCD)
You are required to take distributions from your IRA at age 72, known as Required Minimum Distributions (RMD). The QCD strategy is typically used by those that do not need their entire RMD to fund their lifestyle and are therefore able to donate a portion of the RMD to charity. For those who are worried about potentially large RMDs in the future, you can make QCDs beginning at age 70 ½- before your RMDs begin.
How do QCDs Work?
An IRA owner can make up to $100,000 in Qualified Charitable Distributions directly from their IRA to a qualified charity annually. It can be as simple as writing a check, but there are multiple ways to make the gift. The amount contributed will not count toward your taxable income for the year. It is a simple way to contribute to charity and will reduce your taxable income- even if you do not itemize deductions.
QCDs must be distributed from the IRA during the calendar year. Anything distributed after 12/31 will not count as a current tax year QCD or toward satisfying your RMD for that year. Also, you can only make QCDs from IRAs. Qualified plans such as 401(k)s and 403(b)s are not eligible.
If you are still making deductible contributions to your IRA, that will affect your QCDs. Talk to your CPA or Financial Advisor if this situation applies to you before making the QCD.
Not Reported on 1099R
Be aware that QCDs are not reported on your 1099R. This means that the charitable contribution will show up as a normal distribution. You will have to let your CPA know the amount you contributed. Keep accurate records throughout the year as you make donations and request receipts from charities.
QCDs are just one option to make tax-advantaged gifts to charity. Give us a call if you would like to discuss integrating QCDs into your charitable giving goals!