The following analysis should not be considered as tax advice. Please consult you tax advisor for the approach that is suitable for your circumstances.
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Charitable Giving and Reducing Tax Liability
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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.
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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.
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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.
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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.)
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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).
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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?
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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.
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Funds distributed directly to you, the IRA owner, and which you then give to charity do not qualify as a QCD.
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Consult a tax advisor to determine if making a QCD from your IRA is appropriate for your situation.
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*Much of the information supplied here is based on an analysis of Fidelity FMR LLC (found HERE).