Not KFC. Not QFC. A QCD, also known as a Qualified Charitable Distribution.
With the changes to the tax code for 2018, it’s possible that your charitable contributions will no longer result in a reduction of your tax liability. The Joint Committee on Taxation estimates that 94% of households will claim the standard deduction in 2018. This is an increase from roughly 70% of households who claimed the standard deduction previously. Especially in high income tax states, like Oregon, even if you itemized in the past, you might not in the future. And if your itemized deductions (including charitable donations) are less than the standard deduction, you likely will not receive a tax benefit for your charitable donation.
Don’t get me wrong, the tax savings on a charitable contribution isn’t the primary motivation behind your giving, but saving a few pennies on your tax bill is an added benefit you probably don’t want to lose. When presented with a challenge, it’s good to identify solutions. So, is there any way to still make a charitable contribution and receive a tax benefit moving forward? Given the right circumstances, YES with a QCD!
If you are over the age of 70 ½, are subject to Required Minimum Distributions (RMDs), and make a distribution DIRECTLY from your IRA to your charity of choice, you would have made a “QCD.” With a QCD, the amount withdrawn from your IRA does not get added to your Adjusted Gross Income (AGI) as a regular RMD does; therefore you pay fewer taxes on your Social Security benefits, avoiding IRMAA related Medicare premium increases, and minimize increases in capital gains tax rates too. The tax code has allowed QCDs since 2015 (so this is not new).
QCDs can come from traditional IRAs or inherited IRAs, but they cannot come from employer-sponsored retirement plans. In reviewing this attribute, it may make sense to consolidate old 401(k), 403(b) and 457 accounts to take advantage of the full benefits of the QCD. It is possible to make a QCD of up to $100,000 per year per person.
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This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.