Take Advantage of a Great Tax Deduction That Ends This Year
With all the talk of potential tax law changes that may be coming in 2022 (or sooner), one great opportunity that goes away this year may have gone unnoticed. A Qualified Charitable Distribution (QCD) allows those over age 70½ to distribute up to $100,000 per year directly to charity each year. These distributions count towards the person’s required minimum distribution from the retirement account without needing to include those distributions into their taxable income. While not limited to tax deferred IRAs or 401Ks, these accounts are usually the best funds to give to charity as distribution of these funds would otherwise be taxable. If you are under 70½, or you want to give more than $100,000, the distribution from a retirement account is added to taxable income and then any donation to charity is deductible, but only up to 60% of adjusted gross income. This year, as a result of the Coronavirus relief package, the opportunity exists to make a cash distribution from a retirement account and donate the same to charity and deduct 100% of that donation.
This means, if you wanted to, you could distribute 100% of a retirement account directly to charity and pay no taxes this year. While those under age 59½ would still not want to make the distribution from a retirement account and incur the 10% penalty, if you are over that age this could make some sense as a way to mitigate future taxes you will incur on large mandatory distributions from the retirement account. If you are considering making a large donation in the future, you may want to accelerate that donation into this year. Unfortunately, this benefit is limited to cash donations to active charities. In-kind donations, donations to Donor Advised Funds, and the like are still limited to previous levels.
As always, you should consult your tax advisors to see if this opportunity is right for your unique situation.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.