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Time to Give, but Also Receive (from Uncle Sam)!

At the end of the year the Salvation Army red kettles come out, the bells ring and the charitable organizations turn up their activities for fundraising, hoping to appeal to the holiday spirits of people, and in some cases the tax planning needs of businesses and corporations as well!


Speaking of charitable giving and tax planning, there is one very useful tool that many senior citizens are not aware of that can help with both; the “QCD” or Qualified Charitable Distribution. This allows someone who is required to take money from their IRA (due to their age) the ability to have it go directly from the IRA custodian to the charity and have it essentially “skip” their tax return, while still fulfilling the required minimum distribution and causing no taxes on their 1040. With the historically high standard deductions over the past few years, many people no longer file Schedule A, so charitable contributions (which are deducted on Schedule A) often no longer provide a direct tax benefit. The QCD technique, by essentially taking that IRA income completely off the tax return, allows the taxpayer to reap direct rewards from charitable giving while still getting the full advantage of the standard deduction.


The more resent tax changes centered around the pandemic, specifically the CARES Act, did not change the rules around the QCD, which allows individuals over 70½ years old to donate up to $100,000 in IRA assets directly to charity annually, without taking the distribution as taxable income.


And remember that under the CARES Act an individual can elect to deduct up to 100 percent of their AGI for charitable contributions made in cash. This effectively affords individuals over 59½ years old (minimum age to avoid early withdrawal penalty) similar benefits to a QCD, in that they can take a cash distribution from their IRA, contribute the cash to charity, and may completely offset tax attributable to the distribution by taking a charitable deduction in an amount up to 100 percent of their Adjusted Gross Income (AGI) for the tax year. If you’re planning to make a large charitable donation in 2021 and you are between the ages of 59½ and 70½ (and are not dependent on existing retirement funds for basic needs), then you should get with a tax planner before the end of the year to see if this strategy might work for you! Give us a call at (614) 356-8647



Cover Photo by Julia M Cameron from Pexels

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