You are probably aware that the tax laws are changing in 2018. However, many of us aren’t crystal clear on all of the details of these changes. For example, deductions are changing. The biggest deduction change is that the standard deduction has increased. The increase applies to all taxpayers. As an example, it’s $24,000 for joint filers (plus $1300 for each spouse over 65). As a consequence, many people will use the standard deduction rather than itemized deductions starting in 2018. (The changes in mortgage deductions, home-equity interest deductions, limits on state and local taxes and other deduction restrictions make it even more likely that people will opt for the standard deduction.)
So, in this new tax environment, people are thinking about how to minimize taxes if they switch from itemized to standard deductions. One approach that’s being considered is the Qualified Charitable Distribution rule or QCD. This allows you to contribute up to $100,000 per year per taxpayer to qualified charities and to reduce your adjusted gross income (AGI) by this amount. Lowering your AGI offers benefits not available when using itemized deductions. For example, a lower AGI might put you into a lower tax bracket or even help you reduce the amount of Social Security that is taxable.
Even if you made charitable contributions in the past, you may not have heard of QCDs before. They simply permit you to transfer money directly from your traditional IRA to a qualified charity if you are 70 ½ or older. This reduces your AGI and eliminates taxes on the donated portion of your required minimum distribution. (The RMD is an amount that you must withdraw from your traditional IRA annually once you reach age 70 ½.)
There are a few details that need to be considered when using this tax strategy. For example, you cannot use it until the tax year in which you turn 70 ½, spouses must withdraw their QCDs from separate IRAs, distributions to charities must be made by December 31st and non-deductible IRAs do not qualify. If you’d like help with these details or with a more comprehensive QCD discussion, we’d be happy to talk with you in a no-charge, no-obligation initial meeting. Just visit our website or give us a call at 970.419.8212 to learn more.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.