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If you are age 70 ½ or older, the Qualified Charitable Distribution (QCD) typically provides the biggest tax break to donors. For those age 72 or older, a QCD also reduces your required minimum distribution dollar for dollar up to $100,000. Unlike other charitable gifts, you get the deduction whether you itemize deductions or not.
Here’s how it works. Funds are distributed from your pretax IRA directly to charity by completing a distribution form or writing a check against the IRA. Please confirm which method applies with your account custodian. At the end of the year, the custodian will produce a 1099-R. However, the custodian is not required to track charitable distributions vs non-charitable distributions. Therefore, keep a record of your QCD transactions and written acknowledgement of the donation from the charity. When your tax return is prepared, the amount on the 1099-R will be reported as the gross amount, but the taxable amount will factor in the QCD deduction. This lowers your adjusted gross income, which lowers your taxable income and tax bill.
Most charities can accept QCD donations. Some that cannot include donor-advised funds, private foundations and supporting organizations. Like other charitable gifts, you are also prohibited from receiving a benefit in return for your gift.
To better understand, let’s assume a married couple has $140,000 of gross income. This is their resulting tax savings.
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No Donation
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$10,000 Gift
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$10,000 QCD
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Federal Tax Savings:
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$0
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$0
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$2,200
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Notice the $10,000 QCD provides a benefit, but the $10,000 gift does not because it requires the couple to itemize their deductions. Since the Tax Cuts and Jobs Act became law, few people itemize. By using the QCD, they receive the tax break even if they don’t itemize. In addition to the federal tax savings, they would also benefit from state income tax savings too.
Thank you for considering a gift to the Wisconsin Medical Society Foundation so we can continue improving the well-being of our communities on behalf of physicians. The Foundation provides more than $800,000 annually in financial assistance to medical students, medical research and community health grants championed by Wisconsin physicians to improve health equity and access. For assistance making a gift to the Foundation, please contact Foundation Executive Director, Elizabeth Ringle at elizabeth.ringle@wismed.org.
Key Points:
- Charitable taxpayers over age 70 ½ years old can benefit from Qualified Charitable Distributions (QCD) to lower their adjusted gross income and therefore taxes.
- Itemizing deductions is not needed to benefit from this strategy.
- QCD helps to satisfy some or all the required minimum distribution for those age 72 and older.
- Gifts are made from a tax deferred IRA directly to charity.
- Taxpayers should document the gift in their tax records so it can be reported on their tax return.
To learn more about tax planning and giving, click here.
For personalized help eliminating debt, investing smart, and securing retirement, please contact Mark Ziety, CFP®, AIF® 608.442.3750.
WisMed Financial, Inc. is part of the Wisconsin Medical Society.
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