ARTICLE | February 03, 2025

Many nonprofit organizations across the country rely on donations to support their operations. These funds not only support worthy causes in our community, but the qualified distribution rules can help you leverage your donation and minimize your taxation. The new rules for 2018, brought on by the Tax Cuts and Jobs Act, could play a significant role in your charitable giving decisions and estate planning moving forward.

Qualified Charitable Distribution (QCD)

For individuals over age 65, starting in 2018, the standard deduction for married filers has been raised to $26,600, while the standard deduction for single filers has been raised to $13,300.
This means that if you were previously making charitable contributions and itemizing your deductions at an amount under these thresholds, you will no longer receive a benefit for your charitable donations starting in 2018. However, if you’re a taxpayer with a traditional Individual Retirement Account (IRA) and are over the age of 70 1/2, you can make donations directly to charities out of your tax deferred accounts, and avoid tax on the distribution from your account.

Charitable vs. Noncharitable Organizations

To take advantage of a QCD, your donations must be given to an organization recognized by the IRS as a Qualified Organization.
Examples of qualified organizations are:

• Churches and other religious institutions;
• Federal, state and local governments, if the gift is solely for public purposes;
• Other 501(c)(3) organizations (e.g. Salvation Army, Goodwill, United Way, etc.)

Organizations NOT qualified for charitable deduction transfers include:

• Civic leagues, social and sports clubs, labor unions and chambers of commerce;
• Groups run for personal profit;
• Donor advised funds (these are qualified organizations under normal deductibility rules); and
• Lobbying organizations.

QCD Planning Strategies

These QCD rules can significantly impact the way you plan to withdraw money from your tax-deferred accounts if you are 70 1/2 years or older.
At this age, the IRS requires you to withdraw a minimum distribution from all your qualified tax-deferred accounts. This guarantees that you will pay tax on these dollars, which was previously untaxed money.
With QCD rules, you may potentially avoid this inevitable tax, up to $100,000 a year (indexed to inflation starting in 2024). This occurs as a transfer of funds from your qualified account directly to the charity.

Additional Tax Benefits

Implementing a QCD strategy can provide additional tax benefits by lowering your overall adjusted gross income (AGI), including:

• Keeping social security benefits from being taxable;
• Lowering capital gains tax rates;
• Increasing deductible medical expenses;
• Minimizing the net investment tax; or
• Avoiding higher Medicare Part B premiums.

Create a Meaningful Legacy

The Qualified Charitable Distribution provision brings an advantageous opportunity for you and your family. We can work alongside you to navigate these rules and help you create a meaningful legacy for your family and the charitable organizations you’re passionate about.