♠ Posted by Marc J. Soss in 2016 Retirement Account Contributions,elder planning,estate plan,florida estate planning,Florida Retirement,Sarasota attorney,Sarasota Tax Lawyer at Tuesday, March 22, 2016
For the past several years, Congress has employed a last minute temporary
rule that allowed IRA
owners to exclude
their required minimum distributions (RMDs), from their adjusted gross income,
by making a direct contribution of the funds to a qualified charitable
organization. However, this last minute action made planning difficult for taxpayers.
Finally, in December 2015, the Qualified Charitable Deduction (“QCD”) provision
became a permanent part of the U.S. Tax Code. This allows taxpayers to comfortably utilize
the provision and establish long-term planning strategies around it moving
forward.
Eligibility
and Advantages:
Any IRA owner or beneficiary who is at least 70.5 years old, no
exceptions, can use the QCD rule to donate their required minimum distribution or
up to $100,000 per year to charity and exempt the funds from taxation. All
contributions and earnings inside the IRA are QCD eligible but are classified
as a nondeductible contribution. Taxpayers may not utilize a joint gifting
strategy for the purpose of QCDs.
The biggest benefit of utilizing the QCD provision is the
ability for a taxpayer to lower their adjusted gross income, since the gifted
funds do not count as taxable income to them. This can allow a taxpayer to stay
in a lower income tax bracket, reduce or eliminate the taxation of Social
Security or other income and remain eligible for deductions and credits that
might be lost if the taxpayer had to declare the RMD amount as income. Another
advantage is the taxpayer will not have to itemize deductions in order to
qualify for this deduction (since the exclusion applies to adjusted gross
income and not taxable income).
Rules
In order for the donation to qualify under the QCD rules it must
be made directly to the charity. The IRA owner or beneficiary can personally receive
the check and deliver it to the charity, but they cannot deposit the funds and
then make out a check to the charity. The recipient charity must also be a
qualified 501(c)3 organization and a charitable gift annuity will not qualify. The
charitable donation amount must be substantiated by the charity with a written
receipt.
