Investments

Qualified Charitable Distributions and Your Taxes

By Dean Barber

May 16, 2019

Let’s talk about QCDs, qualified charitable distributions. Now, QCDs are something that’s been around for a number of years – yet hasn’t been talked about. However, thanks to the Tax Cuts and Jobs Act, it’s really become something that is a windfall to a lot of people if they understand how to utilize the QCD.

What are Qualified Charitable Distributions?

So, qualified charitable distributions allow somebody who is age 70½ or older, to take your money directly from an IRA to a qualified charity. And the benefit of it is it counts towards a required minimum distribution (RMD), but it doesn’t get included in your income.

Okay, so it’s not deductible, but it’s better than being deductible, right? Why is it important that it doesn’t show up on your income? That’s the same as getting the deduction, right?

It’s not – because you have a lot of people now taking the standard deduction, now $27,000 this year, and taxes limited to $10,000. If you’re over age 65, you’re going to have to give $17,000 to charity or have a lot of medical before you’re itemizing. And so, if we give through the QCD, and it never gets included in income, we still get to take that standard deduction. But we’ve kept money out which, by reducing our income, it might reduce the amount we’re paying tax on Social Security or might cause you to pay less than for your Medicare premiums.

QCDs have been on the books, but it’s been underutilized. But, all of a sudden, people are starting to get it. This is what tax planning is about because this is a benefit you can utilize and reduce your exposure to Uncle Sam.

Rules for Qualified Charitable Distributions

You might not be 70½ yet, but I guarantee you know somebody who is 70½. And if you or that person is charitable in nature, then you owe it to yourself to dive in and understand the qualified charitable distribution. This isn’t something you wait until the end of the year to do because a lot of you will give to the church on a weekly basis. Sometimes you do things on a monthly basis or to different charities at different times. Well, if you’ve already given those monies to charity, and you’re already getting your RMD, you can’t go back and undo them.

You have to go through and figure out where is your money coming to spend. So many people will take money out of their IRA, for their monthly allowance, or paycheck. But then they’ll turn around and write a check to a charity. When you do that, you’re losing the benefit, because it has to go directly to a charity from the IRA. It’s such an easy thing! Isn’t that a pretty good return on that time it took to make that phone call.

Like I mentioned above, that extra distribution, if it’s not done through qualified charitable distributions, could cause you to have to pay higher Medicare premiums or other taxes on different sources of income. The tax code gets even more complicated when you’re retired. The reason is there are all kinds of different income that comes in, and all with various rules. It’s imperative you understand how you can reduce your tax burden over time with a forward-looking tax plan.

Tax Reduction Strategies

To get a better understanding of tax reduction strategies like qualified charitable distributions, get our Tax Reduction Strategies white paper. While tax planning isn’t a DIY process, this report will get you to start thinking about how you might be able to reduce your taxes over time.

Get a Forward-Looking Tax Plan

Our forward-looking tax planning process involves sitting down with a financial planner and developing a financial plan. Then our team of CPAs can then review for tax planning opportunities today and in the future. If you want to start forward-looking tax plan, fill out the form below or give us a call at 913-393-1000.

Make sure to catch the episode The Time for Tax Planning is NOW on America’s Wealth Management Show where Bud Kasper and I examine bear markets and recessions and what they mean to your retirement. You can find it on on your favorite podcast apps like Apple Podcasts or Stitcher, just subscribe!

Let's Get in Touch

Investment advisory services offered through Barber Financial Group, Inc., an SEC Registered Investment Adviser.

The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.