The last few months of the year are when many people make charitable donations.
Those who are over 70 ½ may make a donation from their IRA account (also known as a qualified charitable donation (QCD)). A QCD must be made to a 501(c)(3) organization. Instead of sending a charitable donation via check from your bank account, request that a check be sent out from your IRA to your chosen charity.
Why Should I Make A Charitable Donation From my IRA?
There are several different benefits to making a qualified charitable donation from your IRA account. This example illustrates the benefits:
Sally and James Doe donate $7,000 to a local charity each November. They arrived at this amount based on advice from their CPA. Due to his age, James must begin taking his required minimum distribution (RMD) of $12,500 from his IRA account this year. Instead of taking the $7,000 out of their bank account to make their charitable donation, they reach out to their financial advisor and request the forms to make their charitable donation directly from James’ IRA.
This will benefit Sally and James in a few different ways:
- They will fulfill their desired charitable giving commitment.
- This will satisfy a portion of John’s RMD.
- They will not pay taxes on the funds donated directly to the charity.
- They lowered their taxable income.
How Do I Decide How Much To Donate To Charity?
When deciding on an amount to donate to charity, there isn’t one simple formula that works for everyone. There are several factors to consider:
- What do your finances look like? Do you need the money?
- Will it be beneficial to you tax wise? Your tax professional can help you answer this question.
- Do you have any personal and religious beliefs for giving? For instance, tithing.
- Base your donation on your yearly income. To be consistent, you could donate a specific percentage of your income, increasing the amount with raises and promotions.
What Else Should I Know About Qualified Charitable Donations?
Here are a 3 key things to remember when making a qualified charitable donation:
- Verify the organization qualifies before making your donation.
- You can ask any organization whether it is a qualified organization, and most will be able to tell you. You can also check by going to the Tax Exempt Organization Search.
- In order to benefit you in the current tax year, donations must be received by the organization before December 31 of the year you are making the donation.
- Consider getting a start earlier in the year or at least beginning the process no later than the beginning of December.
- Be sure to let your tax preparer know that you performed a QCD, since it’s not specifically listed on the 1099-R form as a charitable donation.
- If you haven’t received a receipt for your donation by tax time, you may want to reach out to the organization to request one.
Contact your tax preparer to learn how QCDs can specifically benefit you.
HAVE YOU COMPLETED YOUR FINANCIAL CHECKLIST THIS YEAR?
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