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A Big Tax Break for Contributing to a Favorite Charity

Late in 2015, Congress enacted a permanent tax law that allows older taxpayers to support a favorite charity while receiving a significant tax break at the same time. This provision is called a Qualified Charitable Distribution (QCD) and allows taxpayers aged 70 ½ and older to transfer up to $100,000 each year directly from their IRA accounts to a qualified charitable organization. The gift does NOT increase the donor’s taxable income, unlike most distributions from a normal IRA account. And the contribution counts towards the donor’s yearly Required Minimum Distribution (RMD). State tax benefits may also result from the use of this method.

While this rule has been in the tax code for several years, the provision expired and was subject to renewal by Congress each year. Unfortunately, this approval often did not occur until the very near -end of a tax year. The last minute approval made it a challenge for clients to make a decision on direct gifts from an IRA to a charity, especially if they’d already taken their yearly RMDs earlier in the year.

As noted above in late 2015, Congress approved another extension of the QCD and made the provision permanent. So in 2016 and later years, taxpayers can consider taking advantage of this provision throughout each year when making a large gift to charity.

If you would like to consider making a significant QCD, we encourage you to discuss it with your GBQ tax professional to understand all potential consequences of the transaction. Because there is no clear, consistent method for brokerage firms to indicate that the distribution has been made directly to a charity, at a minimum you should make your tax professional aware that you have made a gift via a QCD.