As the filing season for 2018 tax returns reaches a peak, many people will learn that they’re no longer itemizing deductions. The Tax Cuts and Jobs Act of 2017 (TCJA) placed limits on some deductions and increased the standard deduction significantly, so most taxpayers are taking the standard deduction, rather than itemizing.
One result is that charitable contributions offer no direct tax benefit for many donors. An indirect benefit may be available for people who are 70½ or older, however. They can take qualified charitable distributions (QCDs) from their IRAs and effectively reduce their income in a maneuver solidly supported by the tax code.
IRA owners can send QCDs to recognized charities, up to $100,000 per person per year. They receive no deduction for the contribution, but they also do not have to include the distribution in income. Moreover, a QCD counts toward required minimum distributions (RMDs), which IRA owners must take after age 70½.
Be aware that using QCDs may not be a straightforward exercise since IRA custodians differ in the way they handle the procedure.
Oftentimes, taxpayers will have to call their IRA custodian and speak to a designated person who is familiar with QCDs. Charitable recipients can be named, along with their mailing addresses. Securities might have to be sold, if the QCD is to be made in cash, and a form might have to be signed by the IRA owner for each charity, permitting the QCD.
Other financial firms might send out a distribution booklet to be returned, along with a signature guarantee for each QCD. Yet another possible method is to handle the QCD transaction online. The process can be time-consuming and possibly confusing, so it’s best not to wait until the waning days of December to get started.
Keep in mind that a distribution will only be a QCD if the entire distribution meets the requirements for a charitable contribution deduction, such as a charity’s eligibility under Section 501(c)(3) of the tax code and substantiation requirements. QCDs can’t be sent to donor-advised funds.