Qualified Charitable Distributions: Direct Gifts From IRAs Can Provide Additional Tax Benefits

0
Qualified Charitable Distributions: Direct Gifts From IRAs Can Provide Additional Tax Benefits

Qualified Charitable Distributions

Direct Gifts From IRAs Can Provide Additional Tax Benefits

December 30, 2014

by Tim Steffen

PDF | Page 2

Seth Klarman’s 2021 Letter: Baupost’s “Never-Ending” Hunt For Information

Baupost's investment process involves "never-ending" gleaning of facts to help support investment ideas Seth Klarman writes in his end-of-year letter to investors. In the letter, a copy of which ValueWalk has been able to review, the value investor describes the Baupost Group's process to identify ideas and answer the most critical questions about its potential Read More

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

The Qualified Charitable Distribution (QCD) rules allow taxpayers to make IRA distributions payable directly to a qualified charity without treating the distribution as taxable income. This law permits up to $100,000 per taxpayer to be contributed directly from an IRA to charity. In addition, the distributions will count towards the IRA owner’s Required Minimum Distribution.

The QCD rules have expired and then extended periodically over the years, and were recently extended again through 2014 with the passage of the Tax Increase Prevention Act of 2014.  These rules do expire again after 2014, meaning taxpayers will enter 2015 with the same uncertainty they had throughout the prior year.

Tax rules

In order to be considered a Qualified Charitable Distribution, the following conditions must be met:

  • The IRA account holder must be age 70½ or older as of the date of the distribution.
  • Eligible recipients are public charities, excluding donor advised funds and supporting organizations.
  • The exclusion from income only applies if the distribution otherwise would have been treated as taxable income (which leads to a planning opportunity – see below).
  • The full payment to the charity would have been allowable for a charitable contribution.
  • The distribution must be a direct transfer from the IRA trustee to the charity.  The IRA owner cannot use the QCD as a way to reimburse themself for gifts already made on their own.

Tax benefits of a qualified charitable distribution

Prior to the QCD rules, a taxpayer could take a distribution from their IRA (which would be included in their Adjusted Gross Income, or AGI), donate the same dollar amount to a charity, and offset the IRA income by claiming an itemized deduction for the donation.  In most cases, the two amounts would offset each other and there would be no net impact on the taxpayer’s taxable income.  For an IRA distribution treated as a QCD, however, the taxpayer neither reports the income as part of their AGI nor claims a charitable deduction.  This treatment may seem to provide the same tax benefit as just donating the cash from the RMD, but it does offer some unique benefits.

PDF | Page 2

Remember, if you have a question or comment, send it to [email protected]

Updated on

The Advisory Profession’s Best Web Sites by Bob Veres His firm has created more than 2,000 websites for financial advisors. Bart Wisniowski, founder and CEO of Advisor Websites, has the best seat in the house to watch the rapidly evolving state-of-the-art in website design and feature sets in this age of social media, video blogs and smartphones. In a recent interview, Wisniowski not only talked about the latest developments and trends that he’s seeing; he also identified some of the advisory profession’s most interesting and creative websites.
Previous article LinkedIn vs Facebook for Networking and for Marketing [INFOGRAPHIC]
Next article Tepper Says S&P 500 Could Rise Up To 10 Percent Next Year

No posts to display