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 Reducing Tax Liability
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 (which is increasingly the case because the standard deduction is now $30,000 for a married couple). This is done using what is called a Qualified Charitable Distribution (QCD)as the source for charitable giving.
Qualified Charitable Distribution (QCD)*
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 (which is increasingly the case because the standard deduction is now $30,000 for a married couple). This is done using what is called a Qualified Charitable Distribution (QCD)as the source for charitable giving.
A QCD is a direct transfer of funds from a retiree’s IRA custodian, payable to a qualified charity, like FISH. QCDs can be counted toward satisfying the 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. For example, a married couple with a marginal tax rate of 24% that use this mechanism to donate $1000 to FISH would have their federal tax liability reduced by $240.
But people who take advantage of the Virginia Neighborhood Assistance Program (NAP) available through FISH can achieve additional substantial tax savings. Because the NAP program provides a tax credit of 65% that can be applied to Virginia taxes, the couple that contributed $1000 to FISH would enjoy an additional $650 of tax saving. (The minimum that can be contributed by individuals to be eligible for the tax credit is $500. For businesses it is $650.)
In other words the Qualified Charitable Distribution provision of the federal tax law plus the NAP tax credit available from the state of Virginia means that the net after-tax cost to the couple above who contributed $1000 to FISH would be only $110 ($1000 - $240 - $650 = $110).
There is a limit on the total amount of NAP credits that FISH has to make available. For the fiscal year from July 1, 2025, through June 30, 2026, the total is $27,000. Credits are assigned on a first-come first-served basis.
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:
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You must be 70½ or older to be eligible to make a QCD.
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The maximum annual amount that can qualify for a QCD is $108,000. 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 $108,000.)
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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.
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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).