Qualified Charitable Distributions can restore tax benefits of charitable giving to some taxpayers
The 2017 Tax Cuts and Jobs Act (TCJA) raised the standard deduction for taxpayers to $24,000 for couples ($12,000 for singles), reducing the number of taxpayers claiming a deduction for charitable giving and reducing the tax savings for each dollar donated. By some estimates, the law reduced the marginal tax benefit of giving to charity by more than 30% and raised the after-tax cost of donating by about 7%. For charitably-minded taxpayers, the effect can be discouraging.
There is a work-around to these limitations for taxpayers who qualify, by making a Qualified Charitable Distribution (up to $100,000) as a direct transfer to a charitable organization from an individual retirement account (IRA). The QCD goes directly to the charity and reduces the IRA owner’s taxable income. This has the effect of giving the donor the full charitable tax deduction otherwise lost to the TCJA.
Both spouses can make their own QCDs, and IRA owners as young as age 70 1/2 can make QCDs, even though they aren’t required to take minimum distributions out of the account until age 72. This has the added benefit of reducing the size of the IRA before RMDs begin, thereby lowering future taxable income. Beneficiaries of any age who have inherited IRAs can also make QCDs in the ten years granted to distribute the account.
If you’d like more information on how you can use QCDs to gain the full tax benefit of your charitable donation, and to learn how to manage donations larger than $100,000, please contact your Cranbrook Wealth investment professional.