Following the elimination of miscellaneous deductions, the addition of a $10,000 limit on deducting state and local taxes, and an increase to the standard deduction under the 2017 Tax Cuts and Jobs Act, it became much less likely that many taxpayers would reach the amounts where itemizing was more beneficial than simply using the standard deduction. This meant that charitable donors, who had previously received an itemized deduction for their giving, would no longer receive an additional tax benefit from donating to eligible charities.

Further complicating things for retirees is the rule regarding required minimum distributions (RMDs). When retirees with individual retirement accounts (IRAs) reach the hearty age of seventy and a half years old, Federal law requires them to take out a certain percentage of the money in their IRAs each year.  This annual withdrawal is called a required minimum distribution.  Ordinarily, the government taxes RMDs.  However, the government does not tax the portion of the RMDs that retirees directly transfer to an eligible charity.  This type of donation is called a Qualified Charitable Distribution (QCD).

One of the biggest advantages of a QCD is that it will reduce a retiree’s adjusted gross income. Normally, IRA distributions (such as required minimum distributions) are included in the calculation of taxable income. However, when the taxpayer utilizes the QCD, the IRA owner can exclude that portion of their RMD from adjusted gross income which effectively reduces a retiree’s tax liability.

Will you be able to take advantage of a QCD? To find out more about the rules relating to Qualified Charitable Distributions and to see if it is an effective tax strategy for you, please contact a Kimble team member.