David and Jan want to maintain their charitable giving at about 10% of their gross income, but they are concerned about the tax implications of the Tax Cuts and Jobs Act and want to better understand their options.
What We Learned
David and Jan are enjoying an active and secure retirement – debt-free. They regularly volunteer in their community, serve on a couple of boards, and donate to charitable organizations in cash.
They both receive social security, as well as income from their investments, rental properties, and David’s pension. They will be turning age 70 ½ this year and are required to take an annual Required Minimum Distribution (RMD) from their individual retirement accounts.
Under the new Tax Cuts and Jobs Act, they can no longer deduct all their state and local tax1 and they do not have mortgage interest, so David and Jan will not be itemizing deductions. As a result, their current charitable donations will no longer provide any tax savings.
In lieu of their current cash donations, an alternative tax-savvy strategy for charitable giving could be considered – Qualified Charitable Distributions (QCDs). For individuals over the page of 70 ½, Individual Retirement Accounts (IRAs) allow for individuals to use a QCD to direct all or a portion of an RMD to be distributed to a qualified charity without counting the distribution as taxable income.
Instead of writing personal checks, David and Jan can complete IRA distribution forms that direct a portion of their RMD to each of their desired charities. The charitable organizations would continue to receive much needed support, while David and Jan could benefit from reduced taxable income.
1 Source: congress.gov
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