Consider making a Qualified Charitable Distribution from your IRA. You can fulfill your philanthropic goals and save on taxes.
Recent changes to the tax laws will have a significant impact on itemized deductions. As a result, more individuals will now use the higher standard deduction starting with the the 2018 tax year. Therefore, many people were concerned that this change would reduce individuals’ willingness to donate to charity.
A Qualified Charitable Distribution (QCD) allows you to satisfy your yearly Required Minimum Distribution by sending the distribution directly to a qualified charitable organization. Consequently, you can exclude the amount of the distribution from your gross income.
You must be over 70 ½ to process a QCD. In addition, the distribution must be a direct trustee to trustee transfer, meaning the distribution must be payable to the charity (and not the account holder). The maximum QCD amount excludable from an individual’s gross income in any tax year is $100,000. This amount increases to $200,000 for married couples if each individual were to process a $100,000 QCD.
In conclusion, by reducing your gross income, you may also benefit from reduced phaseouts and limitations you may otherwise have been subject to. This could potentially increase your deductions, allow you to claim losses, or lessen the taxability of certain income items such as Social Security.