Tag Archives: RMD

Charitable Gifts and the New US Tax Code

Some non-profits reportedly fear a loss of donations after the changes to the US Tax Code last month. Why? Because the standard deduction has been doubled–to $12,000 for a single person or $24,000 for a married couple filing a joint return. That, in turn, may encourage many people to choose the standard deduction rather than itemizing.

Itemizing, it so happens, is the only way that charitable donations can be deducted (but see below on a legal way around this). I’m not quite sure of the logic that the primary reason people give to charity is that they can get a tax deduction. An itemized deduction does reduce taxable income and hence taxes paid–but is that really why people donate? Don’t they care about the programs, services or causes the charity provides or supports?

Anyway, there is one way to give to charity and still pay less in taxes: Give your RMD directly to charity. Here’s the deal: If you had a tax-deferred investment–like an IRA, once you turn 70 1/2, the IRS wants the taxes that you deferred and any earnings on that investment.  So you must take a required minimum distribution (RMD) from that account. It adds to your taxable income. If you have enough deductions (mortgage interest, state property and income taxes, medical expenses and charitable deductions) to exceed that standard deduction, then you itemize. You’d take that RMD, put it in the bank and donate the cash to the charity. If not, read on.

IF you receive that RMD and THEN give it to the charity, it’s taxable.  BUT, if you arrange to have that RMD go directly to the charity–never touching your hands or your bank account, it is not included in your gross income. Voila–your tax deduction survives, in a manner of speaking, and the charity still gets its money.

Talk to the RMD administrator and to the charity to set this up. Don’t want to give all of the RMD to the charity? Arrange for a percentage amount. Most account administrators have flexibility on dates, where the money is going, etc. Never fear that the charity won’t be happy to receive your money and work out the details with you and the administrator.

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