Tax tip for seniors

[IdahoMtnSpyder]

I thought I'd share this since a number of us fit the age category and may not know about this.

As you know the Federal Income Tax law was significantly changed a few months ago. A big change that affects a lot of is the increase in the standard deduction. The increase is great enough, e.g., $24,000 vs $12,000 for married filing jointly, that many of us who have relied on deductions to reduce our tax liability will no longer find it advantageous to itemize. But there is one reduction that remains but not well known, called the Qualified Charitable Distribution.

If you are older than 70 1/2 and have an IRA you are required to withdraw what is called the Minimum Required Distribution. If this applies to you, and you are making donations to a charity, then check out the QCD. That is a provision where you have the custodian cut a check made out to the charity. That money then counts toward meeting your RMD, AND, it is not counted as taxable income! So if itemizing your deductions doesn't work for you anymore, go the QCD route and your charitable donation will still reduce your taxable income. Unfortunately, this provision is not available for 401k and similar retirement funds. Talk to your tax advisor. I plan to take advantage of it for myself this year.

 

[UtahPete]

I thought I'd share this since a number of us fit the age category and may not know about this.

As you know the Federal Income Tax law was significantly changed a few months ago. A big change that affects a lot of is the increase in the standard deduction. The increase is great enough, e.g., $24,000 vs $12,000 for married filing jointly, that many of us who have relied on deductions to reduce our tax liability will no longer find it advantageous to itemize. But there is one reduction that remains but not well known, called the Qualified Charitable Distribution.

If you are older than 70 1/2 and have an IRA you are required to withdraw what is called the Minimum Required Distribution. If this applies to you, and you are making donations to a charity, then check out the QCD. That is a provision where you have the custodian cut a check made out to the charity. That money then counts toward meeting your RMD, AND, it is not counted as taxable income! So if itemizing your deductions doesn't work for you anymore, go the QCD route and your charitable donation will still reduce your taxable income. Unfortunately, this provision is not available for 401k and similar retirement funds. Talk to your tax advisor. I plan to take advantage of it for myself this year.

I was thinking of setting up a charity to absorb this new cash flow :joke:

 

[RinconRyder]

READ THIS FIRST:

https://www.fidelity.com/building-savings/learn-about-iras/required-minimum-distributions/qcds

 

[BLUEKNIGHT911]

WELLLLLLL NOW THAT YOU MENTION IT

I thought I'd share this since a number of us fit the age category and may not know about this.

As you know the Federal Income Tax law was significantly changed a few months ago. A big change that affects a lot of is the increase in the standard deduction. The increase is great enough, e.g., $24,000 vs $12,000 for married filing jointly, that many of us who have relied on deductions to reduce our tax liability will no longer find it advantageous to itemize. But there is one reduction that remains but not well known, called the Qualified Charitable Distribution.

If you are older than 70 1/2 and have an IRA you are required to withdraw what is called the Minimum Required Distribution. If this applies to you, and you are making donations to a charity, then check out the QCD. That is a provision where you have the custodian cut a check made out to the charity. That money then counts toward meeting your RMD, AND, it is not counted as taxable income! So if itemizing your deductions doesn't work for you anymore, go the QCD route and your charitable donation will still reduce your taxable income. Unfortunately, this provision is not available for 401k and similar retirement funds. Talk to your tax advisor. I plan to take advantage of it for myself this year.

#1. - this does not apply to the 2017 tax filing ..... next year it will ....#2.- if I understand what you are saying then ( Hypothetical $ amounts ) if one has a $10,000 RMD and wants to donate it to a Charity via the " QCD " method in order to get a $2,000 Tax deduction ....How would you be ahead ??? ..... There is $8,000 you don't get to spend or put in your saving account !!!!! ............. This may not be the out-come but I think it is ....... Mike :thumbup:

 

[IdahoMtnSpyder]

#1. - this does not apply to the 2017 tax filing ..... next year it will ....#2.- if I understand what you are saying then ( Hypothetical $ amounts ) if one has a $10,000 RMD and wants to donate it to a Charity via the " QCD " method in order to get a $2,000 Tax deduction ....How would you be ahead ??? ..... There is $8,000 you don't get to spend or put in your saving account !!!!! ............. This may not be the out-come but I think it is ....... Mike :thumbup:

This plan works only if you already are, or plan to be, in the habit of giving donations to charity! You wouldn't be spending or saving that money for yourself anyway so you gain by reducing the taxes on the money you keep for yourself just like you always have.

 

[bhern]

Good idea

#1. - this does not apply to the 2017 tax filing ..... next year it will ....#2.- if I understand what you are saying then ( Hypothetical $ amounts ) if one has a $10,000 RMD and wants to donate it to a Charity via the " QCD " method in order to get a $2,000 Tax deduction ....How would you be ahead ??? ..... There is $8,000 you don't get to spend or put in your saving account !!!!! ............. This may not be the out-come but I think it is ....... Mike :thumbup:

Mike -- piling on to what IdahoMtnSpyder was saying, the context for this idea is if your normal mode of charitable giving made it beneficial for you to itemize your deductions in 2017 and before, but would not do so under the new rules. (Translated, your itemized deductions were above $12,000 but not above $24,000.)

Take your example a bit further. Assume you have a $50,000 RMD, give $5,000 to charity each year, and between taxes, mortgage, whatever, have $10,000 in other itemizable deductions. Right now (for 2018), you wouldn't be able to benefit from the charitable giving from a tax perspective, since the new threshold for the standard deduction is $24,000. So if the RMD was all of your income, you'd lop $24K off the top and pay taxes on $26,000.

However, using the QCD, you still get your $24,000 standard deduction, but by having the custodian distribute the $5,000 directly to your charity(ies) of choice, your taxable income is now only $45,000, so you take the $24K off of that and pay taxes on $21,000.

Your mileage may vary, of course, but basically unless your itemized deductions *outside* of charitable giving are above $24,000, the QCD is an idea worth exploring.

Thanks for sharing, IdahoMtnSpyder -- I'm not quite there yet (but getting there fast), so appreciate the food for thought.

 

[BLUEKNIGHT911]

FOOD FOR THOUGHT

Mike -- piling on to what IdahoMtnSpyder was saying, the context for this idea is if your normal mode of charitable giving made it beneficial for you to itemize your deductions in 2017 and before, but would not do so under the new rules. (Translated, your itemized deductions were above $12,000 but not above $24,000.)

Take your example a bit further. Assume you have a $50,000 RMD, give $5,000 to charity each year, and between taxes, mortgage, whatever, have $10,000 in other itemizable deductions. Right now (for 2018), you wouldn't be able to benefit from the charitable giving from a tax perspective, since the new threshold for the standard deduction is $24,000. So if the RMD was all of your income, you'd lop $24K off the top and pay taxes on $26,000.

However, using the QCD, you still get your $24,000 standard deduction, but by having the custodian distribute the $5,000 directly to your charity(ies) of choice, your taxable income is now only $45,000, so you take the $24K off of that and pay taxes on $21,000.

Your mileage may vary, of course, but basically unless your itemized deductions *outside* of charitable giving are above $24,000, the QCD is an idea worth exploring.

Thanks for sharing, IdahoMtnSpyder -- I'm not quite there yet (but getting there fast), so appreciate the food for thought.

Here's some more ...... I give to Charities not because of Any Tax Breaks I MAY get ............ It's because it's the RIGHT thing to Do !!!!!!!!!!!! ...So lets halt the Crucifixion ...at least until I make some more Tire pressure comments :banghead::banghead::banghead::banghead:....... What's interesting on this Forum is the very large number of " MIND READERS " who claim to know Exactly what you are thinking and then BASH you for saying something you didn't say but they are sure you did !!!!!! ......... your welcome ......... Mike :thumbup:

 

[nealperkins]

Good observations!
Easy answers...one size fits all.