Sponsored by Peters Wealth Advisors LLC
While a tax break isn’t the reason people contribute to a charity, it makes financial sense to take advantage of the tax breaks now available. Before you make a charitable contribution to your favorite cause, it’s a good idea to take a look at the tax rules that can help boost both how much you give and what you get in return.
A qualified charitable distribution (QCD) is made directly from an IRA to an eligible charity, bypassing the owner of the account. The QCD is available only to IRA owners and IRA beneficiaries who are age 70½ or older—this group is generally subject to required minimum distributions of their IRAs. But those who qualify for QCDs can get both the larger standard deduction and the tax benefit of giving to charity.
While QCDs are not new, the impact of the new tax rules is. As most taxpayers will be using the new, larger standard deductions and not itemizing, they no longer will be able to deduct their charitable contributions from their income. Managing Partner at Peters Wealth Advisors LLC, Dustin Dowling, shed some light on how and when you donate to result in a bigger gift for both you and your charity.
• While many IRA are eligible for distributions, you must be 70 ½ or older to be eligible to make a QCD.
• QCDs are limited to the amount that would otherwise be taxed as ordinary income. This excludes non-deductible contributions.
• The maximum annual amount that can qualify for a QCD is $100,000. This applies to the sum of QCDs made to one or more charities in a calendar year. For a QCD to count towards your current year’s required minimum distribution (RMD), the funds must come out of your IRA by your RMD deadline, generally December 31. Given that tax credits come after you file your tax return at the end of April, donating in December means you can get money back just a few months later, as opposed to having to wait up to 15 months if you wait until January and donate as part of the new tax year.
CHARITIES THAT QUALIFY
• The charity must be a 501(c)(3) organization, eligible to receive tax-deductible contributions.
• Some charities do not qualify for QCDs, such as private foundations, supporting organizations, or donor-advised funds that public charities manage on behalf of organizations, families, or individuals.
HOW TO REPORT TAXES
• For inherited IRAs, including Roth, qualified charitable distributions will be reported as a death distribution.
• For any non-inherited IRAs, a qualified charitable distribution is reported as a normal distribution on IRS Form 1099-R.
• Itemization is not required to make a QCD. While the QCD amount is not taxed, you may not then claim the distribution as a charitable tax deduction.
• A qualified charitable distribution is not subject to withholding. State tax rules may vary, so for guidance, consult a tax advisor.
It’s important to stay up to date on tax laws and seek advice you can trust. A tax advisor can help you determine if both your IRA and charity qualify for QCDs. Since tax laws periodically change, this information may not reflect the most recent changes. For more information or advice, contact Dustin and his team at Peters Wealth Advisors LLC—225.766.4885 or click here for the most up-to-date advice.
This article is not tax, legal or other professional advice and cannot be relied upon for any purpose without consultation and advice from a retained professional. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Advisory services offered through Almanack Investment Partners, LLC, an SEC registered investment advisory firm