A Note from the Treasurer of the Elizabeth Presbytery on Charitable Giving:
Giving Smart—Giving More.
We want to be ‘wise as serpents and innocent as doves.’ We want to be smart and effective in our giving.
Changes in the tax law made it so most of us no longer find it advantageous to itemize deductions. But there are some tax smart ways to make charitable donations in a tax-efficient way.
But first, let me say that everyone’s situation is different, and you would be wise to consult a tax professional if you are in doubt. I am not a tax expert, and am giving my thoughts about areas to look at as you manage your taxes and charitable contributions.
Those of us who have IRAs are generally mandated to take “Required Minimum Distributions (RMDs) once we reach age 72. If you simply take the money directly from the IRA, it is part of your taxable income. If you don’t itemize, and use the standard deduction, you pay taxes on the whole RMD, even the portion that you give to a qualified charity.
Unless you donate through a Qualified Charitable Distribution (QCD). Go to https://www.irs.gov/publications/p590b to learn more. A qualified charitable distribution is generally a nontaxable distribution made directly by the trustee of your IRA to an organization eligible to receive tax deductible contributions. (p.13). This means you do not pay tax on the contribution, and it no longer matters whether you itemize or not. Your charity gets the full donation directly from the IRA.
What if I have a 401(k) or 403(b) plan? You can’t take your RMD as you can with an IRA. However, it is possible to roll your account into an IRA and then use the RMD as described above.
Of course, if you are not required to take RMDs, which is generally if you are under age 72, you can’t use this method. But, you can still make gifts of appreciated securities (stocks, bonds) and not pay taxes on your accumulated capital gains.
And since you don’t have taxable income arising from an RMD or a gift of appreciated stock, you can choose donate more.