The following analysis should not be considered as tax advice. Please consult you tax advisor for the approach that is suitable for your circumstances.
Charitable Giving and the New Tax Law
The new federal tax law that took effect with the 2018 tax year has implications for charitable giving. Taxpayers who itemize deductions rather than take the standard deduction have for many years been able to include charitable gifts among the things that they itemize, which reduces their tax liability. The new law continues that provision. The difference is that many people who previously itemized deductions will now find it more advantageous to take the standard deduction because the size of the deduction has been doubled; for a couple, it increases from $12,000 to $24,000. For those people who previously itemized but now take the standard deduction, charitable giving will no longer result in a reduction in their federal tax liability.
However, for people who are over age 70 1/2 and have a Required Minimum Distribution to be paid from their IRAs or other taxable retirement account, there is a way to give to charities and reduce their tax liability even if they do not itemize deductions; they may also put themselves in a lower tax bracket as well (and, as a result, realize other tax benefits). This is done using what is called a Qualified Charitable Distribution.
Qualified Charitable Distribution (QCD)*
A Qualified Charitable Distribution (QCD) is a direct transfer of funds from your IRA custodian, payable to a qualified charity, like FISH. QCDs can be counted toward satisfying your required minimum distributions (RMDs) for the year, as long as certain rules are met.
In addition to the benefits of giving to a charity, a QCD excludes the amount donated from taxable income, which is unlike regular withdrawals from an IRA. The effect on one’s tax liability is essentially the same as what results from itemizing the charitable deduction.
Keeping your taxable income lower also may have other beneficial tax effects related to taxation of Social Security income and phasing out of certain other tax-saving provisions.
How do I know if I can I make a QCD to FISH?
While many IRAs are eligible for QCDs, there are requirements:
You must be 70½ or older to be eligible to make a QCD.
The maximum annual amount that can qualify for a QCD is $100,000. This applies to the sum of QCDs made to one or more charities in a calendar year. (If, however, you file taxes jointly, your spouse can also make a QCD from his or her own IRA within the same tax year for up to $100,000.)
For a QCD to count towards your current year's RMD, the funds must come out of your IRA by your RMD deadline, generally December 31.
QCDs are limited to the amount that would otherwise be taxed as ordinary income. This excludes non-deductible contributions.
Funds distributed directly to you, the IRA owner, and which you then give to charity do not qualify as a QCD.
Consult a tax advisor to determine if making a QCD from your IRA is appropriate for your situation.
*Much of the information supplied here is based on an analysis of Fidelity FMR LLC (found HERE).