Trinity Memorial Church

44 Main Street

Binghamton, NY 13905

(607) 723-3593

trinity@trinitymemorial.org

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Trinity Times

Here you can find selected material from issues of Trinity Memorial Church's monthly newsletter, the Trinity Times

For some folks… Another Way to Reduce Your Taxes for Charitable Contributions

We know that you, like most folks, would continue to give to the church regardless of the tax benefits, but there is a unique way of giving which is applicable to some of us, and perhaps the tax benefits would help you or allow you to give even more generously.

 

If you:

  • expect to use the standard deduction for income tax rather than itemizing deductions, which is the case for more of us with the new tax law,

  • are required to take Required Minimum Distributions (RMDs) from your Individual Retirement Account (IRA) if you have one,

you may still be able to reduce your taxable income through qualified charitable contributions, such as those made to Trinity.

 

To do this you direct your IRA custodian (generally a financial advisor or investment organization) to make a “Qualified Charitable Distribution” (QCD) to one or more qualified charities.  These distributions can count towards your Required Minimum Distribution (RMD) from your IRA or exceed it, but cannot exceed $100,000 (or $200,000 if you file jointly with your spouse). If you choose to do this, you must clearly specify to your IRA custodian that the distribution is a QCD; then the check is made out to the charity, NOT TO YOU.  You should not benefit from the transaction other than satisfying your RMD and reducing your taxable income. The net effect is essentially the same as an itemized deduction, although you do not itemize the QCDs on your tax returns.

 

If, for some reason, you end up itemizing deductions after doing QCDs, it is okay as long as you do not itemize the QCD amounts (which are handled differently on your tax return).  In other words, you cannot double-dip on the reduction of taxable income.

 

One thing that you need to be aware of is that the IRS form 1099 sent by your IRA custodian to you and to IRS to report your IRA distributions reflects your total distributions and this reported amount is NOT reduced by the amount of your QCDs.  In filing your taxes you need to (or tell your tax advisor to) report both the total distributions (as contained in the 1099s) and the taxable distributions (the 1099 amount reduced by the amount of the QCDs). To keep track of your QCDs you must keep records received from your charities that document your contributions as well as distribution reports from your IRA custodian.  

 

On the 1040 tax form, the total distributions goes on line 4a and the taxable distributions (amount on 4a minus QCDs) goes on line 4b with a notation next to it: “QCD”.  Note: if you also have pensions and/or annuities, the IRA distributions (total and taxable) are lumped in with them on 4a and 4b. In case the tax forms undergo a change, follow the 1040 instructions.  If you have a tax advisor, he/she will know what to do. If you use TurboTax, it will prompt you for QCD-handling when you report your distributions (1099s).

 

Finally, you would probably want to execute your QCD once a year for a particular charity in order to keep the matter simple and avoid “nickel and diming” your IRA custodian.

 

Brad Bennett

 

Please note: the above article contains excellent guidance for QCDs; it does not, however, constitute legal advice on how to handle your IRA distributions; for any questions, please consult a qualified tax professional, applicable IRS resources, or your IRA custodian.