Charitable Contributions for 2018
Qualified Charitable Distributions (QCD) Income Tax Savings,
6 Benefits, and 5 Rules
Want to make Charitable Contributions? Not sure about the benefits and rules?
In 2017, 37 million income tax returns reported charitable donations. In 2018, that number is widely expected to decrease. The reason is the Tax Cut and Jobs Act (TCJA) of 2017 increased the standard deduction to $12K for single filers and $24K for joint filers. The new law also placed a cap ($10K) of how much you can itemize from your state and local taxes (SALT). This means that many charitably minded tax-payers may not receive any tax benefit for their contributions because their total itemized deductions will be less than the new standard deduction.
Taxpayers Under Age 70 ½
If you’re under age 70 ½ you may want to consider a concept called “stacking”. In order to receive a tax benefit from your Charitable Contribution, your itemized deductions must exceed your standard deduction. In many cases your annual contributions when combined with your itemized deductions will fall short. Doubling your charitable contribution in 1 year and skipping the next year may assist in exceeding your standard deduction enabling a tax benefit. You can even consider tripling your contribution in 1 year and skipping the next 2. It’s always prudent to discuss the rules and benefits with your Certified Public Accountant (CPA).
Taxpayers 70 ½ and Older
For taxpayers over 70 ½, making Contributions via a Qualified Charitable Distribution has several benefits and advantages.
The Required Minimum Distribution (RMD) that must be withdrawn from your retirement accounts often is a larger amount than needed for consumption. This larger distribution may place you in a higher Federal Marginal Tax Bracket, subject a greater percentage of your Social Security benefits to Federal Tax and increase your premiums for Medicare Parts B and D.
A Qualified Charitable Distribution enables you to transfer funds directly from your IRA to a Qualified Public Charity(s) of your choice. The distribution going to the charity will be credited towards your RMD requirement and will not be subject to Federal Income Tax. In addition, the distribution will not impact your Medicare premiums and will not be included in your Provisional Income calculation to determine the Federal Taxation of your Social Security Retirement Benefits.
- Satisfy Required Minimum Distribution (RMD) requirements
- Reduce overall Income Tax
- Prevent Tax Bracket Creep
- Will not negatively impact your Medicare Parts B and D premiums
- Satisfy your Charitable Desires
- No obligation to contribute in following years
- Must be age 70 ½ or older
- $100,000 is the annual maximum contribution
- Must be a Qualified Charity (No Private Foundations or Donor Advised Funds)
- Distribution must come directly from an IRA. Qualified Plans are not permitted at this time
- The transaction must be completed by the end of the tax year
Qualified Charitable Contributions are one of several tax savings techniques we cover in our
Retirement Income and Retirement Tax Workshops.
For a listing of our upcoming complimentary workshops, please click Retirement Income Planning .