Under the Influence – Do Some Good, Save Some Taxes!

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By Shawndi Purselley, CFP®, CDFA®, Owner and Co-Founder, Wealth Advisor

My great grandparents were avid tithers.  They were a lower middle- income family. However, that did not deter them from giving to their church.  I remember as the donation plate was passed along down the pews every Sunday, my grandfather would always give me the money to place in the tray. It always made me feel good to give that money.  These days schools are teaching kids to donate by having such events as an annual food drive competition between classrooms.  My children’s school also participates in a blanket and coat drive each year.  One year, one of my children’s teachers kept a penny donation container on her desk so that students could bring in pennies to place in the container throughout the year.  At the end of the drive, the students were able to decide which charity would receive the money.   Giving can be for everyone and there is no donation that is too small (or too large).

Armstrong Purselley’s team members are avid donors to several charitable organizations throughout the year.  Our team is encouraged to spend a half day several times a year during their normal workday volunteering at charitable events.   We also sponsor a donation bin in the parking lot of our Bedford office to allow for citizens of the community to easily donate clothing items.

It is not often that we can do good and save on taxes at the same time. However, when utilizing a Qualified Charitable Distribution (QCD), you can do just that.   We often meet with retired and/or aging clients that have a passion for giving.  Often times we find that the vast majority of their assets are held inside of their individual retirement accounts (IRA).  As we all know, withdrawing assets from an IRA subjects the amount withdrawn to taxes based on your annual effective tax rate.  You then have to either take more from the IRA than you planned to give in order to pay the taxes on the donation, or you may need to pay the taxes from your other assets.

Any person with qualified assets can utilize a QCD as long as they are 70.5 or older.  If you are 72 or older then you are required to begin taking required minimum distributions (RMD) from your IRA and other qualified accounts.  This requirement is mandatory whether you need (or want) the money.  The IRS requires a distribution each year based on a calculation using the previous year’s end IRA value and your remaining life expectancy.   The QCD allows for these RMDs to be paid partially or wholly, direct to a qualified charity

If you regularly donate to a charity, or are just entering the age in which an RMD is needed, and at the same time you are interested in possibly lowering your tax bill and doing some good along the way, then a QCD might work well for you.  A QCD is a withdrawal from an IRA that is made payable directly to an eligible charity.  The check can be sent to you so that you can deliver to the organization personally.

This distribution can satisfy all or part of the amount of your annual required minimum distribution.  As an example, if your RMD is $10,000 and you make a qualified charitable distribution of $5,000, you would still need to take an additional $5,000 to satisfy your RMD for that year.  You would have a taxable withdrawal of $5,000 and a non-taxable QCD of $5,000.  In short, the QCD rule allows you to deduct your RMD on your tax return when giving the money to charity.  QCDs are capped at $100,000 annually per person.

The QCD will be reported on an IRS Form1099R and you will need to report the QCD on your IRS Form 1040.

If you would like help in understanding how a qualified charitable distribution may be of benefit to you, please give our office a call.  We are a team of CFP® professionals and have an on-site tax professional in our office as well.

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