Many people believe they are getting a tax benefit from their donation, but did you know that you must have itemized deductions higher than the standard deduction to be able to claim the donation as a deduction? After the Tax Cut and Jobs Act was passed in 2017, 87% of households now claim the standard deduction. If you are one of these households and you also give to charity, then you receive no federal tax deduction for your donation! This makes a Qualified Charitable Donation (QCD) an attractive way to give, for those that are eligible.
According to the IRS, an eligible participant is an account holder of an IRA or beneficiary IRA (employer plans do not qualify) who is also at least 70.5 years old at the time of distribution. If the account holder is 72 then a QCD may satisfy the required minimum distribution that is mandated by the IRS. This allows an IRA owner to avoid some or all the federal tax liability that results from the mandatory distribution, while also being able to give to their favorite qualifying charity. It truly is a win-win situation for those that give to charity that also take the standard deduction!
In order to effectively implement a QCD, the IRA distribution must go directly to the qualifying charity. The account holder will still receive the 1099 tax form for the full amount taken but is able to note on their tax return that a QCD was implemented. It is important to know that state tax may still apply depending on the state that you reside in. Finally, be sure to speak with your tax professional to ensure that a QCD is right for your situation.
*Information provided should not be relied upon for tax, legal, or accounting advice, as it is intended form informational purposes only. You should consult your own tax, legal, and accounting professionals before engaging in any transactions