The Tax Cuts and Jobs Act, passed at the end of 2017, significantly alters many of the deductions to which we have become accustomed. One of those changes will reduce the tax benefit of charitable giving for many individuals. However, the changes also make a previous rule more advantageous.
The standard deduction has almost doubled this year, moving from $6,350 to $12,000 for individuals and $12,700 to $24,000 for a married couple. This, in addition to the combined $10,000 limit on state income and property tax, means that fewer people will itemize their deductions. For many, this will eliminate the tax incentive for charitable giving (though we expect this isn’t the only reason you choose to give).
There is, however, still a way to receive a tax benefit from charitable giving without itemizing, if you are taking a Required Minimum Distribution (RMD). An RMD is a required distribution from retirement accounts for individuals who have turned 70½. If you’re one of these individuals, the IRS allows you to give up to $100,000 per year from retirement accounts directly to charity. This Qualified Charitable Distribution (QCD) reduces the taxable amount of your IRA distribution and thus lowers not only your taxable income, but also your adjusted gross income.
Obviously, reducing taxable income reduces the amount of income tax you will pay. But reducing your adjusted gross income can also save you money in the future, as it is this value the government uses to calculate your Medicare Part B premiums.
Please note that the custodian of your account (Schwab or TD Ameritrade) will not account for the QCD on your 1099-R, which shows the distributions from your retirement accounts. You will need to maintain your own documentation and provide that to your tax return preparer in order to take advantage of this benefit.
If you have any questions about taking advantage of this opportunity, please let us know. We would be happy to help.