If you are age 70 ½ or older and give to charities, there’s a way you can give to a qualified charity and cut your taxes by using a Qualified Charitable Distribution (QCD). A QCD allows you to give up to $100,000 a year, from your IRA, directly to a qualified charity without paying taxes. If you are married, both spouses can give up to $100,000, each from your own IRA, for a total of $200,000.
This amount can even count as all, or part, of your Required Minimum Distribution. To make an eligible Qualified Charitable Distribution, you must be at least age 70 ½, and the gift must be distributed from your IRA to the charity.
The benefit of a QCD is that it’s NOT taxed as income to you or to the charity, and it does not increase your adjusted gross income (AGI) – this is very important.
Now contrast this to taking a normal, taxable distribution from your IRA, giving that after tax amount to a charity, and then deducting the gift from your tax return. When you take a normal distribution from your IRA, it’s ALL taxable income and is reported on your tax return.
This normal distribution DOES increase your AGI - which in turn can cause a ripple effect on your other taxes and deductions. When your AGI goes up, it can cause you to pay more taxes on your social security benefits, increase Medicare part B premiums, and even cause itemized deductions to be phased out. It also raises the floor on the medical deduction.
Conversely, since Qualified Charitable Distributions are not included in your adjusted gross income (AGI), it avoids these problems altogether by not increasing your AGI. This lowers the odds that you’ll be affected by unfavorable AGI-based rules. So if you are age 70 ½ or older and are charitably inclined, using a QCD might be a better way.
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