Age 70½ – Consider making charitable contributions directly from your IRA
The Tax Cuts and Jobs Act (TCJA) increased the standard deductions and made significant changes to itemized deductions. The coordination of these changes will result in many taxpayers using the standard deduction and no longer itemizing deductions.
We will be providing tax planning opportunities over the next few weeks for individuals that may no longer be able to take advantage of deductions they took in the past.
For taxpayers age 70½ and older who donate to charity, there is a planning opportunity that may be even more worthwhile after the TCJA.
Taxpayers who are required to take minimum distributions (RMD) from their IRAs are allowed to make the distributions, up to $100,000, directly to qualified charities. The distributions to charities satisfy the RMD requirement, and the result is the RMD is no longer taxable income to the taxpayer. These distributions are called “Qualified Charitable Distributions” (QCD).
For taxpayers that are 70½ and older that will now use a standard deduction, donations to charity will not provide a tax deductible benefit. In this situation, making a QCD is a great tax-savings vehicle. The effect of the QCD is to lower AGI which can have the following benefits in addition to lowering taxable income:
- Can lower Medicare premiums
- Can increase rental real estate losses
- Can reduce income subject to 3.8% net investment income tax
Even if you will continue to itemize deductions, utilizing a QCD to lower your AGI can still save taxes by:
- Increasing your allowable medical deductions
- Increasing your other allowable charitable contributions if you are subject to AGI limitation
If you are older than 70½ and are making charitable contributions, we advise talking to your investment advisors about making your contributions through a QCD. If you have already taken your RMD for 2018, consider utilizing this opportunity for 2019 and future years.
If you would like to understand how a QCD can help with your specific tax situation, please contact us.