Charitable Giving and the New Tax Law—QCDs

If you’ve been wondering—and maybe worrying—how the new tax law will affect charitable giving, you may be interested in learning about qualified charitable distributions (QCDs).

TFE wants you to be well-informed about topics that impact the financial health of parishes and ministries in the diocese. One topic of interest is how charitable giving is affected by tax law, especially now that there have been substantial changes to the tax code.

Changes to the standard deduction (which has increased to $12,000 for individuals and $24,000 for married persons filing jointly) mean that fewer people will itemize their deductions and so be able to claim a deduction for charitable giving. But there are still ways taxpayers can use charitable giving as a strategy for reducing their tax burden. For taxpayers over 70½ who have a traditional IRA, one strategy is to use qualified charitable distributions (QCDs).

What Is a Qualified Charitable Distribution?

After age 70½, people who have traditional IRAs must take required minimum distributions (RMDs) or face a stiff penalty. These distributions are subject to income tax and increase the person’s overall income—possibly affecting their tax bracket. If the income from the IRA distribution is not needed for living expenses, some or all of the distribution can be donated directly to a qualifying 501(c)(3) organization such as a church or other nonprofit. This direct charitable donation excludes the amount that is donated from taxable income.

What Are the Basics?

• Taxpayers must be 70½ or older and have a traditional IRA (not a Roth) to make a qualified charitable distribution. You cannot make QCDs from a 401(k), but these funds could be rolled over into an IRA for the purpose.
• The church or nonprofit receiving the donation must be a 501(c)(3) organization. Gifts to private foundations and donor-advised funds don’t qualify for the QCD.
• Individuals can donate up to $100,000 per year this way. For married couples, each spouse can donate up to $100,000.
• Taxpayers can donate part or all of their required minimum distribution.
• The donation must be made directly from the IRA to the church or nonprofit. If you take the distribution and then write a check to the church, you will have to pay taxes on the distribution.
• Taxpayers taking the standard deduction on their taxes can still make a QCDto reduce their taxable income.

An Example

Retired couple Sam and Judy must take a required minimum distribution of $24,000 from their traditional IRA. They've pledged 10,000 to their church. They could take their distribution, and then write a check to their parish, fulfilling their pledge. But that means all $24,000 would be subject to income tax. Instead, they take $14,000 as income, and set up a QCD of $10,000 to their church. This way they only pay taxes on the $14,000 they received—not on the money that was given to the church. Their overall taxable income is reduced by $10,000. And they did not have to itemize their deductions in order to realize this tax savings—they can still take the full standard deduction of $24,000.

Have Questions?

For information on whether qualified charitable distributions are appropriate for you, TFE recommends you consult with your tax, accounting, or financial professional. Your IRA custodian will also be able to assist you in making a QCD distribution. To discuss this and other ways to benefit your parish or other Episcopal ministry, TFE’s Executive Director, Jill Heller, can be reached at (262) 902–5901 or by email at director@tfemil.org.

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