Maximizing Donation Tax Advantages

charity walk

Maximizing donation tax advantages: Recently I answered a reader’s question on this topic at Robert Powell’s Retirement Daily website.

The question was, “How do I avoid taxable income with charitable contributions?”

This reader might have experienced deducting charitable contributions in the past (pre-2017) through itemized deductions.

Post-2017 Tax Act: Donation Tax Advantages Reduced

After 2017, the reader might have noticed they were no longer getting that deduction. Although you can still itemize charitable contributions, the standard deduction with the 2017 Tax Act became so large that, for most people, it no longer made sense to itemize. So the tax advantage to donations was reduced or eliminated for all but the highest incomes.

Advantage: 70-somethings and Older

But people who are at least 70 1/2 do retain one donation advantage. They can make a non-taxable distribution directly from their IRA. It’s called a Qualified Charitable Distribution (“QCD”). A QCD is practically the same as getting a deduction.

Further, once you turn 72, you are forced to distribute the money from IRAs. The distributions are called “required minimum distributions” or “RMD”s. These you must pay tax on. However, if you use a QCD for your RMD by distributing directly to an eligible charity, then no tax is owed on that portion. See the link above for more details on accomplishing this properly.

What questions do you have about IRA distributions? Leave a comment here, or schedule a call at this link:

Holly Donaldson

Holly Donaldson, CFP® has an advice-only, hourly and fee-for-service financial planning practice. She is the author of The Mindful Money Mentality: How to Find Balance in Your Financial Future (Porchview Publishing, 2013) and publisher of the award-winning monthly e-letter, "The View From the Porch." With a fully virtual practice in Seminole, Florida, Holly primarily serves clients located in the Tampa, St. Petersburg, and Clearwater areas. Holly will also work with clients who are a good fit located elsewhere in the United States except Texas.

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