Renner Nonprofit News; December 2, 2022—Joan M. Renner, CPA, CGMA
Donors make the charity world go around, supporting important mission-related impact with their time, talent and treasures.
Your donors don’t expect a reward, but you can thank them by passing along this valuable tax information. In the right situation, a donor’s charitable support can also produce a tax savings.
If you have donors who are age 70½ and give regularly, they may be able to save by donating directly from their IRA. Once they reach age 72 (formerly 70½), individuals who have savings in IRA accounts, must withdraw a certain amount of money from their IRA accounts every year, and pay tax on it. If your donors have to take these Required Minimum Distributions (RMD), they already know about it.
What they might not know is that they can use their RMD to make contributions directly to your charity and avoid tax by making a Qualified Charitable Distribution (QCD).
A qualified charitable distribution (QCD) from your IRA is a great way for donors to make a difference and get a tax benefit at the same time.
Generally, a QCD is an otherwise taxable distribution from a qualified IRA owned by an individual, who is at least age 70½, which is paid directly from the IRA to a qualified charity.
The IRS has declared that charitable donations made from an IRA tax-deferred account will be exempt from taxation for any amount up to $100,000 as long as the distribution comes from a qualified account and is donated to a charity that qualifies to receive deductible contributions. A married couple may contribute $100,000 each, up to a maximum of $200,000. In addition, a QCD will also count toward a taxpayer’s annual required minimum distribution (RMD).
Be sure donors instruct their IRA Trustee to pay the donation directly from the donor’s IRA account.
The donation won’t qualify as a QCD if the donor takes a distribution and writes you a check. If donors do that, their IRA distribution would be taxable. The donation has to be transferred directly from the donor’s IRA to your charity through the donor’s IRA trustee.
QCD is still a benefit even if taxpayers do not itemize.
The 2022 standard deduction for taxpayers 65 and older, is $27,300 for married filers, and $14,700 for single filers. A QCD will provide a tax break even if donors don’t itemize, and they will still be supporting their favorite qualified charity. Donors won’t receive a charitable deduction, but this really doesn’t matter. They’re already getting the full standard deduction, and their IRA RMD is tax free.
More important information:
- A QCD can be any portion of the annual distribution, as long as it is paid directly to the charity.
- Taxpayers must have an acknowledgement of the contribution from your charity.
- Donors may not receive any benefit in exchange for their QCD donation, such as gala tickets.
- Donors who want to make a QCD to your organization should contact their IRA Trustee.
There are more details to know about QCDs.
Encourage donors to contact their tax advisors to discuss how making a qualified charitable distribution will help minimize their tax bill and benefit their qualified charity of choice.
Contact Renner for more information.
Share this article with your donors for information on QCDs.
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