Qualified Charitable Distributions (QCDs)What It Is & How It Provides a Tax Benefit
At Brannen CPA, we want to help our clients thrive. If you’re over 70 ½ there’s a tax benefit you could be taking advantage of by making charitable donations from your individual retirement account (IRA). Qualified charitable distributions, also known as QCDs, are tax-free donations to a qualified charity that transfer directly from your individual retirement account (IRA). In this article we will go over how to make a QCD, the tax benefits of making one, and the deadline for communicating with our office to take advantage of this program.
What is a QCD?
QCDs are tax-free donations to qualified charities from your IRA. Anyone over 70 ½ can elect to transfer money from their IRA and make a donation to a qualified charity. Individuals can exclude up to $100,000 in QCDs from their gross income. For married couples, each spouse can exclude up to $100,000 for a total of $200,000 per year. It is important to note that not all charities are eligible for charitable distributions, so please call our office to ensure the organization you wish to support qualifies.
What are the tax benefits?
QCDs can provide tax benefits in two ways.
When you make a QCD from your IRA it is excluded from your taxable income unlike regular withdrawals. A QCD can be deducted from your gross income, reducing your taxable income and enabling you to take the standard deduction rather than itemizing your deductions.
Standard Deductions for 2024 for those over the age of 65:
● Single Filers: $15,950
● Married Couples, Filing Jointly: $30,700
If you are at least 73 years old, QCDs can also count towards your Required Minimum Distribution (RMD). Once you reach age 73, you must withdraw a minimum amount from your IRA each year, which increases your taxable income. You can use a QCD to fulfill part or all of your RMD for the year, reducing your gross income on your tax return.
When do I need to communicate my plan?
QCDs must be made by December 31, 2024 and it can take several weeks for your advisor and account holder to prepare the necessary paperwork. We encourage our clients who plan to make QCDs from their IRA accounts to contact their investment advisor or custodian of the account no later than December 1st to guarantee there is enough time before the end of the year to process.
Please remember to include your QCD details to us when you submit your 2024 tax documents.
Give yourself a tax break and utilize QCDs this year. Not only are you reducing your taxable income, your QCD is helping support charities that are doing great work in our community. Give our office a call at 207.271.9600 to see if this would make sense for you! At Brannen CPA, we’re here to provide you with superior service for all your tax and accounting needs!