ARE YOU OVER 70 ½ AND MAKING CHARITABLE DONATIONS?

Because of the recent tax law changes, a large majority of Americans will use the standard deduction for 2019, instead of itemizing.  However, if you are still charitably inclined and over age 70 ½ there is another way to continue your donations and reduce your tax bill.  It’s called a Qualified Charitable Distribution (QCD).  For individuals age 70 ½ or older, you can exclude up to $100,000 from your gross income per year in IRA distributions if it is contributed to a qualified charity.  This amount would satisfy your RMD requirement WITHOUT causing the money to be taxed.  

Here’s an example of how this works:

A married couple, filing jointly, has income of $120,000 and an RMD of $20,000.  Their charitable contributions are $12,000 for the year.  They have $6,000 of other itemized deductions. 

SCENARIO A:  Take the RMD of $20,000 (added to gross income) and donate $12,000

Deductions = $6,000 + $12,000 = $18,000 ** Because this is less than the standard deduction of $24,000 they would take the standard deduction

Total Gross Income = $140,000

Total Taxable Income = $116,000 ($140,000 – $24,000 standard deduction)

SCENARIO B:  Make a QCD of $12,000 from the RMD to a qualified charity and take the remaining $8,000 of RMD as income

Deductions = $6,000 ** Because this is less than the standard deduction of $24,000 they would take the standard deduction

Total Gross Income = $128,000 ($140,000 – $12,000 QCD gets deducted right from gross income)

Total Taxable Income = $104,000 ($128,000 gross income – $24,000 standard deduction)

The tax savings from Scenario A vs Scenario B is $7,000!