Market Pulse: Tax savings
June 19, 2018
Are you over 70 ½ and taking required distributions from an IRA? If so, because of last year's tax bill there may be a better way to give to charities and reduce your taxes. It's called a Qualified Charitable Distribution.
Under the new tax rules it is less likely that you will itemize your deductions and instead will use the new higher standard rate, which is $12,000 for single filers and $24,000 for a married couple.
Prior to 2018, the standard deduction for a married couple was $13,000. As a result, the number of taxpayers who itemize deductions is expected to fall from 30 percent to just 10 percent.
If you use the standard deduction, then you will not receive a tax benefit when you give to a charity. That is, you won't receive a financial benefit unless you do a Qualified Charitable Distribution (QCD). With a QCD you can transfer up to $100,000 from your IRA to a charity.
To make a QCD call your IRA custodian and let them know the name of your preferred charity. Most often, they’ll send you a check payable to the charity. You, in turn, give the check to the charity.
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Normally, your required distribution is taxable. But if you choose a QCD then you don't claim the amount as income even though it counts toward your required distribution.
To make a QCD call your IRA custodian and let them know the name of your preferred charity. Most often, they'll send you a check payable to the charity. You, in turn, give the check to the charity.
Come tax time be sure to tell your tax preparer that you did a QCD. That's because the IRA custodian isn't required to identify the QCD on the 1099-R form.
Under the new tax law Qualified Charitable Distributions will become increasingly popular. Still, each individual's tax situation is unique so be sure to talk to your tax adviser to discuss whether this makes sense for you. If it does, you'll save on your taxes as you give to your favorite charities.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.