By JOANNE FOX
Several notable changes have taken effect that may have an impact on 2018 charitable giving, income and tax strategies. Some of these changes may be categorized as either bad news or good news.
First, the bad news – and the one most notable from the 2018 federal tax law changes – is the doubling of the Internal Revenue Service’s standard deduction, ratcheting it up to $24,000 for married couples.
This creates a much higher hurdle for many taxpayers, especially a married couple, to reach in order to benefit from eligible personal expenditures like charitable donations.
According to the Philanthropy Roundtable, a network of charitable donors based in Washington, D.C., two-thirds of American households donate to charity annually. The sweeping changes of the Tax Cuts and Job Act of 2017 will force taxpayers to consider the timing and structure of gifts.
Now, the good news is – particularly for many senior citizens – the Individual Retirement Account Qualified Charitable Distribution which the IRS calls IRA QCD.
According to the IRS – generally – a QCD is an otherwise taxable distribution from an IRA owned by an individual who is age 70½ or older that is paid directly from the IRA to a qualified charity.
On May 30, Iowa enacted new income tax reform law, so retroactive to Jan. 1, taxpayers who are at least 70½ years of age may deduct from their Iowa income a distribution of up to $100,000 from an IRA to qualified charities to the same extent the deduction for the distribution is allowed at the federal level.
Furthermore, the taxpayer does not have to itemize their deductions to take advantage of this deduction.
A diocesan priest, who preferred not to have his name publicized, explained the ease in taking advantage of this opportunity.
“There is no tax on the withdrawal when it goes to the charity,” he said. “You don’t receive the QCD as income and itemize it as a deduction. Instead, the QCD goes straight to the charity and isn’t included in your gross income.”
With this kind of planning, the priest pointed out, people do not have to wait until the end of the year to know how much they gave to the church “and then try and catch up.”
He added, “QCDs are more effective than simply writing a check to a charity, because the QCD allows you to lower your adjusted gross income.”
The priest clarified, a plus on this strategy is, “You know at the beginning of the year how much needs to go to the church and you instruct your IRA administrator to follow through on this. Of course, you may transfer monies anytime during the year.”
CPA Tim Swedean of Swedean & Co., North Sioux City, S.D., agreed with the priest’s insights.
“Although there are some limits on implementing a QCD, such as the age requirement and $100,000 cap, this distribution is far more effective for both the donor and recipient,” he said.
Swedean, a parishioner at Holy Cross Parish, Sioux City, anticipated QCDs would become more popular as more individuals become aware of the tax benefits.
“Individuals can reduce their income with this approach, even if they don’t itemize deductions,” he said. “This allows taxpayers the opportunity of supporting nonprofit organizations.”
Editor’s note: This article is only a summary of this complex tax topic. Readers should consult with their Certified Public Accountant (CPA) or other registered tax professional before taking any action.