Make a Gift….Receive a Gift
Would you like to make a gift to your favorite not-for-profit--501(c)(3)--and effectively receive a 100% deduction from taxes for that gift? You can, if you have a tax qualified account, such as an IRA, and you will be at least age 70½ by December 31.
IRS rules state that beginning at age 70 ½, you must start taking Required Minimum Distributions (RMDs) every year from your tax qualified accounts. Whether or not you need the money, you must begin withdrawals, or you'll be penalized. Typically, withdrawals from tax qualified accounts count as income, and therefore are taxable.
That's where Qualified Charitable Distributions (QCDs) come into play. QCDs allow you to make a cash donation out of your account directly to an IRS approved charity—a 501(c)(3). Note: you cannot write a check yourself to the not-for-profit, the gift must be made by a direct transfer from your IRA or other tax qualified account.
If you go that route, your donation is not included in your adjusted gross income (AGI) on your tax return. Any amount you donate counts towards satisfying your RMD for that year.
The IRS allows annual donations up to $100,000, so if you are charitably minded, you can make some very generous donations while avoiding a lot of taxes.
The net effect is that you are making a withdrawal from your IRA and not paying taxes on it. The charity that receives it doesn't pay taxes either. So, you can potentially pay less in taxes, and the charity gets a tax-free gift.
Everybody wins except the IRS. Are you ok with that?
The information provided regarding tax law or regulation is general in nature and may not apply to a particular individual’s circumstances. Neither cfd Investments, Inc. nor Creative Financial Designs, Inc. nor Covenant Financial Group provide legal or tax advice. Clients are directed to consult with their legal or tax counsel regarding such matters.