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Giving Back In A Tax-Efficient Way

As seen in Sioux Falls Woman Magazine, Dec. 2021/Jan. 2022 issue.*

Donating to the causes you care about not only benefits the charities themselves, it can also be deeply rewarding.  People give to charity to support the causes they believe in, and because helping others can make you feel happier and more fulfilled. Many are not aware that tax benefits exist for those who give.

You have a lot of options for when making a charitable contribution; you can donate cash directly, send appreciated stock or use a donor advised fund. While each has its benefits and drawbacks, one option that works well for many older retirees is a qualified charitable distribution (QCD) from a traditional IRA.

QCD is a gift made to a charitable organization directly from your IRA.

A check is made payable to the charitable organization in the amount that you request and sent by the custodian of your IRA to the organization of your choosing on your behalf.

When a retiree turns 72, the IRS requires them to start taking starts requiring them to take distributions from their IRA’s. These distributions are typically taxed as ordinary income. A QCD can satisfy your required minimum distribution (RMD) for the year and reduce your income taxes. While the required minimum distribution age is 72, retirees who are 70 ½ or older are eligible to make qualified charitable distributions.

If done correctly, there are ways to reduce your tax burden and give to your favorite organizations.

There are some important points to remember:

• Contributions must be made directly from the IRA custodian or trustee to the charity.
• Contributions are limited to the amount that is taxed asordinary income.
• Funds must come out of the IRA by the Required MinimumDistribution (RMD) deadlines.
• The annual limit on QCD’s from all IRA’s cannot exceed$100,000 per individual.

You must be at least age 70 ½ by the date of the charitable contribution. Gifts will not qualify if you make them before you turn 70 ½. Because of the complexity, it is important to look at your full financial picture before determining the right strategy.

Tax and financial planning should take place all year long. When it comes to charitable giving though, take the time now to review the tax laws and consider some strategies with your financial advisor and tax professional.

To report a Qualified Charitable Distribution (QCD) on your Form 1040 tax return:

You generally report the full amount of the charitable distribution on the line for IRA distributions. On the line for the taxable amount, enter zero if the full amount was a qualified charitable distribution. Enter "QCD" next to this line. See the Form 1040 instructions for additional information.

You must also file Form 8606, Nondeductible IRAs, if:

• You made the qualified charitable distribution (QCD) from a traditional IRA in which you had basis and received a distribution from the IRA during the same year, other than the qualified charitable distribution; or

• The qualified charitable distribution (QCD) was made from a Roth IRA.

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*Raymond James is not affiliated and does not endorse Sioux Falls Woman Magazine.

This information is developed from sources believed to be providing accurate information. It is not intended as tax, legal, or investment planning advice. Raymond James advisors do not provide tax services. Changes in tax laws or regulations may occur at any time. Please consult legal or tax professionals for specific information regarding your individual situation.