Much has been written and discussed about charitable deductions in light of the recently passed Tax Cuts and Jobs Act (TCJA). With the increased standard deduction of $12,000 (single) and $24,000 (married filing jointly) and other limitations on itemized deductions under the TCJA, fewer taxpayers will benefit from itemizing on their individual income tax returns starting in 2018. However, if you are over the age of 70 ½, there is an important tax planning opportunity available through a Qualified Charitable Distribution (QCD). QCDs have been a smart tax planning idea for a while, but the tax saving opportunities are now even more important starting in 2018.
A QCD allows a taxpayer who is at least 70 ½ years old to make a direct IRA distribution to a qualified charity without including the distribution in the taxpayer’s gross income. Current tax law allows up to $100,000 to be directly transferred to a charity and excluded from the taxpayer’s gross income. If the taxpayer is married and files a joint return, the spouse is also eligible to contribute up to a $100,000 as a direct transfer to charity. Please note that these transferred amounts are not included in the taxpayer’s gross income, therefore they are not eligible to also be taken as an itemized deduction. In most cases, a lower adjusted gross income will also reduce the state tax liability. Taking advantage of QCDs is also a great way to ensure all Required Minimum Distributions (RMD) have been met since QCDs count towards meeting the annual RMD requirements for the taxpayer.
If you are a taxpayer over age 70 ½ and are looking to donate to charities, talk to your tax professional and investment adviser about QCDs. This unique opportunity allows taxpayers to make charitable contributions through a direct IRA transfer while reducing adjusted gross income and benefiting from the new, larger standard deduction.