IRA Contribution to Charity

With the filing season now complete for the 2018 tax year, many taxpayers may have noticed that the standard deduction pretty much doubled. The standard deduction was increased to $24,000 per married couple ($12,000 for single tax payers) with the new TCJA tax legislation beginning in 2018, which in turn created a much lower number of taxpayers qualifying to itemize their deductions. 

If you are no longer itemizing your deductions, your charitable giving no longer provides a benefit unless your combined itemized deductions are over the standard deduction of $24,000 (MFJ).

However all is not lost, if you find your life situation agrees with the following positions:

  •     Over age 70.5
  •     Own an Individual Retirement Account (IRA)
  •     Have Required Minimum Distribution’s (RMD)

You can donate money to a 501(c) (3) organization directly from your IRA account if over the age of 70.5 up to $100,000 per year. The contribution from your IRA account to the charity does count toward your RMD for the year.

For example, you normally give $5,000 to your church or a charity each year, the standard deduction is taken on your 1040 and your RMD is $5,000 per year. 

If you do business as usual by just writing personal checks to your church or charity, your RMD will be taxable on your tax return and there will be no tax benefit for the charitable giving.

If the donation is paid directly from your IRA to the church or charity, the $5,000 is still reported on the 1040 but it is not taxable because it is reported as a Qualified Charitable Distribution (QCD), so your income is lowered by $5,000 for Federal and State (at least in Indiana) purposes.

You will need to contact the institution that holds your IRA to make the arrangements for the donation to be made to the charity.

If you have any other questions, please contact our offices for assistance.