Next Step Tax & Accounting
  • Clients
    • Portal - Log In
    • Portal - Instructions

Blog

Tax-Free Transfers to Charity

3/29/2017

 
Picture
Are you taking advantage of Qualified Charitable Distributions ("QCDs")?

Many people withdraw money from their IRA to make charitable contributions. The IRA distribution becomes taxable income, and the charitable contribution reduces taxable income. It's a wash, so no big deal, right?
Wrong. This method results in no change to the taxable income, but the adjusted gross income ("AGI") goes up because of the distribution.

AGI is used in numerous calculations on your tax return. Just one simple example is the itemized deduction for medical expenses on Schedule A. As explained in our blog post, medical expenses are only deductible to the extent they exceed a percentage of your AGI. If you receive retirement income, your AGI goes up. Making a charitable contribution lowers your taxable income, but not your AGI. Since this method increases your AGI, less of your medical expenses are deductible.

QCDs allow IRA owners to make charitable contributions and meet Required Minimum Distribution rules without having the amount increase AGI or become taxable income. When a payment is made directly from the IRA to the organization it can be reported on the tax return as if the amount were not a taxable distribution. Since AGI is not increased, more medical expenses are deductible.

Since the QCD is not added to income, it should be noted that the contribution cannot be deducted from income. This is only fair, to prevent the double-dipping of contribution amounts.

For an amount to be a QCD, these rules must be followed.
  • The account must be a standard, traditional IRA (not a SIMPLE or SEP IRA, 401k, etc.).
  • The taxpayer must be 70 1/2 at the date of distribution.
  • The distribution must be made payable directly to the charity.

QCDs meet RMD requirements, and no more than $100,000 may be treated as a QCD. For more information or to see if you can use this strategy to reduce both your AGI and your taxable income while satisfying your desire to make charitable contributions, call us at 435-275-8400 or visit thinknextstep.com.

Comments are closed.

    Next Step Blog

    Our blog is intended as a tool to keep people informed about relevant tax and accounting issues. If you have a question or an idea for a post, let us know!

    Categories

    All
    Audits
    Capital Assets
    Deductions
    Due Dates
    Education
    Employees
    Fraud & Scams
    Income
    Insurance
    IRS Code
    Management
    New Legislation
    Payroll
    Planning
    Refunds & Payments
    Sales Tax
    Tax Deferral
    Tax Forms

    Archives

    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016

    RSS Feed

Copyright © 2023
Picture
  • Clients
    • Portal - Log In
    • Portal - Instructions