As a postlude to our previous blog post discussing the increased standard deduction (see below), many taxpayers will no longer be able to benefit from their charitable contributions (one of the many itemized deductions). However, there is still an acceptable method for retirees.
A retiree, upon turning the age of 70.5, must take out what is called a Required Minimum Distribution (RMD for short). There is a provision that allows the mandatory RMD to be paid directly to a qualified charity. This is called a Qualified Charitable Distribution (or a QCD). The benefit is that the mandatory, taxable IRA distribution is reduced by the amount designated towards a qualified charity. In effect, that same charitable deduction that may not be allowed because of the increased standard deduction, is still achieved because your taxable income is reduced by the QCD.
As an example, let’s say my Required Minimum Distribution (RMD) is $5,000, but I direct $1,000 to my favorite charity, then my taxable income will only reflect $4,000.
This may be new for a lot of philanthropic folks, but we’re here to help navigate this provision. Happy Tax Season!