Timely Topics with Kevin
Qualified Charitable Distributions
I'm often surprised by the number of investors who are not taking advantage of qualified charitable distributions. The benefits of QCD's were increased dramatically with the implementation of The Tax Cuts and Jobs Act in 2018. The large increase of the standard deduction led to many taxpayers switching from itemizing returns to using the standard deduction. The standard deduction for 2024 is $14,600 for a single tax filer and $29,200 for joint filers. Those 65 and older receive an additional $1,950 single and $3,100 joint. Itemized deductions consist of state and local income taxes or sales taxes (whichever is higher), property taxes, personal property taxes, mortgage interest, charitable contributions, medical expenses (if greater than 7.5% AGI), and disaster losses. One caveat is the SALT cap which only allows $10,000 of the total state income taxes, local income taxes, property taxes, and personal property taxes.
A typical household might look something like this:
State income tax $7,500
Property tax (home) $4,000
Personal property tax (cars) $800
Mortgage interest $9,000
Charitable contributions (church) $5,000
Total itemized deductions $26,300 (although only $24,000 allowed due to the SALT cap)
In this example, it's more beneficial to use the $32,300 standard deduction which means there was no tax benefit to giving to charity. Qualified charitable distributions are a great way to still receive a tax benefit for the gift. If you are 70.5 or older, you can distribute up to $105,000 from your IRA to a qualified charity and incur zero income taxes on the distribution. This allows you to give to the charity with pre-tax dollars. As an added benefit, QCD's satisfy RMD's (required minimum distributions).
Continuing with the example above:
If the taxpayer was married, 73 years old and had an RMD of $5,000, they could distribute $5,000 from the IRA directly to the charity. The church still receives the $5,000 and the IRA RMD is satisfied. This results in $1,100 of federal income tax saved/avoided (assuming 22% tax bracket) and $200 of state income tax saved/avoided (Kentucky resident).
I realize this is a lot of information to digest and am happy to discuss further so please don't hesitate to reach out.
Kevin D. Farmer