Qualified Charitable Distribution

Posted on Tuesday, June 15, 2021

While realizing a tax benefit from a charitable gift is normally not the main reason for giving, it certainly helps to know you can deduct the gift you’re making.  However, recent changes to the tax law make it difficult to deduct charitable gifts, especially for retired folks.  So the question is, if the deduction threshold prevents you from itemizing deductions every year, are there any ways for this group to still gain a tax benefit from making charitable contributions under the new tax rules? 

The answer is yes! For those who are at least 70.5 years old, there is a terrific benefit available called a Qualified Charitable Distribution, or QCD for short. 

A QCD is a contribution you make by asking your IRA custodian to make a distribution directly to a charity.  You don’t get to take a charitable deduction for the gift, but you do get to reduce the taxable part of your IRA distribution by the amount you send to the charity.  This type of gift works great for those who are trying to reduce their IRA balance and especially for those who are 72 or over and taking required distributions from their IRA.   

If you are taking required minimum distributions from your IRA, making your contributions by using a QCD is as close to a no-brainer as it gets.  Your federal adjusted gross income is reduced, which gives you the same tax benefit as if you had deducted the contribution.  For Indiana taxpayers, that means your state taxable income is reduced as well, which is a benefit you don’t get from a regular contribution.  In addition, by excluding the contribution from your income, items that are based on your adjusted gross income, such as the taxability of social security benefits or the amount you pay for Medicare premiums could be favorably affected. 

There are a few things to watch out for if you want to make a QCD.   

• The contribution has to go directly from the IRA to the charity – it can’t go to you and then you turn around and write a check.  Also, this only applies to IRA’s, not to any other kind of retirement plan.   
• QCD’s are limited to $100,000 per year  
• You have to be 70.5 years old at the time you to make a QCD. 

As you can see, even with the latest tax law changes, it is still possible to realize tax savings from your charitable giving.  Please contact your DWD Tax Professional to see how using a QCD may work for you. 

Contributed By: Mark Westerhausen, CPA | Director | DWD CPAs & Advisors

Posted in Tax Topics For Individuals

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.