Lower Your Taxable Income by Gifting to Charity

Qualified Charitable Distributions:
Lower Your Taxable Income by Gifting to Charity

The Qualified Charitable Distribution (QCD) is a powerful tool for those looking to achieve philanthropic goals and receive a tax break at the same time. If you are 70 ½ or older and wish to gift funds to charity, a QCD may be right for you.

How a QCD can help

In addition to the benefits of giving to charity, the QCD can be used to meet your RMD. One hundred percent of the donation is excluded from gross income which could have a favorable impact on Social Security taxation, Medicare Part B & D premium increases, additional Medicare tax on investment income, and could potentially drop you into a lower Federal income tax bracket.

Many forms of charitable giving require you to itemize the gift in order to deduct the contributions. Fortunately, the QCD does not have to be itemized and can be excluded regardless if the taxpayer elects to itemize or take the standard deduction.

Who is eligible to make a QCD?

• You must be at least 70 ½ and subject to required minimum distributions (RMD) from your IRA.
• The QCD must come from an IRA, Employer plans such as 401(k), 403(b), and 457 do not allow for the QCD.
• Inherited IRAs are eligible if owner is 70 ½.

Qualifying Rules

• $100,000 annual contribution limit; this can include amounts in excess of your required minimum distribution (RMD).
• The funds must go directly from your IRA to the charity. You cannot take possession of the funds and deposit into your bank account and then send it to the charity.
• The qualified charities are limited mostly to 501(c)(3) public charities and they must receive the funds by December 31^st.

How to file taxes with a QCD

Your 1099-R tax form will not show a special code indicating a QCD was made. The 1099-R will show the total distributions from your IRA, regardless if all or a portion were QCD’s. Please make your tax advisor aware of your Qualified Charitable Distributions, if you don’t tell them you will be taxed on your QCD.

If you have questions about Qualified Charitable Distributions or would like to explore making one, please reach out to our office for help.