A Tax Saving Opportunity – Qualified Charitable Contribution
Wednesday, February 6th, 2019 | Uncategorized | No Comments
As a consequence of the new tax law, fewer taxpayers will be itemizing expenses because of the doubling of the standard deduction and reduction of deductions allowed. This means fewer charitable contributions will be deductible and the tax benefits from making charitable gifts will be lower. However, a substantial tax saving opportunity is available to taxpayers who are over 70.5 years old. It is known as a qualified charitable deduction (QCD).
Charitable contributions are included on Schedule A, Itemized Deductions. A taxpayer deducts the greater of their total itemized deductions or the standard deduction. For tax year 2017, the standard deduction for a married couple both over age 65 and filing a joint tax return was $15,200. This amount has been increased to $ 26,600 for tax year 2018. Therefore, a qualifying taxpayer can get the benefit of the higher standard deduction in addition to a Qualified Charitable Contribution
Taxpayers who have reached age 70.5 are generally required to take the Required Minimum Distribution (RMD) from their Individual Retirement Account (IRA) annually. If they wish to make a charitable contribution, they should consider making a charitable donation directly to the charity from their traditional individual retirement account. The charitable transfer can satisfy their required minimum distribution and lower their taxes if properly structured. Taxpayers may transfer up to $100,000 per year to a qualified charitable organization. The contribution is not included in adjusted gross income and can provide additional tax benefits.
To qualify for the tax-free treatment, it must be a direct transfer from the IRA custodian to the charity. It does not qualify as a tax-free transfer if you withdraw the money first and then make a contribution to a charity.
The IRA owner cannot receive any benefit from the charitable contribution and any small gift or reward from the charity can make the entire contribution ineligible for QCD treatment. A QCD, however, can be used to satisfy a pledge the IRA owner made to the charity. All the regular rules for substantiating charitable contributions must be followed. This means the IRA owner should have documentation in writing from the charity acknowledging the amount and date of the contribution.
QCDs can be made only to public charities that are eligible for charitable contribution deductions under the regular IRS rules. Not eligible for QCD treatment are gifts made to private foundations, donor-advised funds, and charitable gift annuities.
The tax professionals at WarrenJackson can assist you in analyzing the tax benefits of a Qualified Charitable Deduction and make sure the transaction complies with IRS rules and regulations. Give us a call today.
WarrenJackson CPAs
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