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What is a QCD?
It is not a new drug for your health, but it may be beneficial to your financial health. Qualified Charitable Distributions (QCD) are very simple, as far as tax savings go. They may be used to maximize the new, higher standard deduction. It is simple, but that doesn’t mean it won’t have a big impact because it will.
The QCD provision allows you to directly transfer money from an IRA to a qualified charity. This has been a permanent provision for the tax law since 2015, but many who qualify are still not taking advantage of it. Although QCDs themselves did not change under the new tax law, their impact did. QCD’s have been made more valuable than ever, and every person who qualifies should consider making their donations using them.
The new law nearly doubles the standard deduction to $12,000 per year for single filers and $24,000 per married couple filing jointly. This means many folks, and probably you, will likely claim the standard deduction if you do not have enough to itemize charitable, medical or other remaining deductions that survived the latest tax reform. The QCD allows you to claim the standard deduction plus a charitable deduction and the benefits of the QCD.
Now there are some specifications as not all taxpayers or charities qualify for QCDs. If you are an IRA owner or beneficiary and you are 70 ½ or older, then you may qualify. The donation must be directly transferred from the IRA to the charity and nothing can be received in return for the donation. Gifts to donor-advised funds or private foundations do not qualify. The annual limit is $100,000 per person, which would be enough for most people. Also, with a married couple who both qualify for the QCD and have IRA’s subject to required minimum distributions, they can each use the QCD and increase their tax benefit.
A tax deduction for the contribution cannot be taken but the big thing here is that the amount transferred from the IRA is excluded from income and it counts toward your required minimum distribution. Excluding that amount from income, therefore keeping your income lower, can be a better tax benefit than receiving a tax deduction. This allows you to receive more adjusted gross income (AGI) based tax benefits, which could result in a lower tax bracket.
Effective tax planning is too often a neglected aspect of wealth management although it can have a powerful impact on your portfolio. Part of my job is working with you to identify methods to lower your tax liability, which is especially beneficial to clients with large capital gains, severance packages, withdrawals from their IRA or who are in a high tax bracket. Taking advantage of QCDs is one of many ways you may be able to save tax dollars that could be reinvested into wealth building assets. If you have any questions regarding QCDs or tax planning in general, feel free to give me a call at (817) 717-3812.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. Tax laws and provisions are subject to change.