Peggy McGee
The year is almost over. Have you taken your v(RMD) yet? Don’t ignore it, or the IRS will penalize you to the tune of a 50% excise tax on the amount not distributed as required.
The IRS allows taxpayers over the age of 70 1/2 to make a contribution of up to $100,000 to a recognized charity, as well as churches, and not have to pay taxes on the amount donated. In most cases, distributions from a traditional Individual Retirement Account (IRA) are taxable in the year the account owner receives them. A Qualified Charitable Distribution (QCD) is an exception to that rule. A QCD is a nontaxable distribution made directly by the Trustee of an IRA to organizations that are eligible to receive tax-deductible contributions. A QCD will count toward an RMD. The amount of the QCD can’t be more than the amount of the distribution that would count as income.
If you have not taken your RMD, here’s a way you can reduce your tax liability for your 2023 taxes that you will be filing in the spring. The “catch” with the QCD is that the IRA Trustee must make the check payable to the charity. You can ask your Trustee to mail the check directly to the charity or to send it to you to give to the charity. If you use your checking account to write the check, the charity will thank you, but there is no reduction in one’s taxable income. If you have already taken your RMD, you can still make a QCD for 2023 if you get the request in and it is processed before the end of the year.
Even if you don’t want to consider a QCD for 2023, you might want to consider it when you do your tax planning in 2024. If you already give a certain amount to your favorite charity, why pay taxes on that amount? It pays to plan ahead. However, if you do take a QCD, then you cannot use that same donation to reduce your Arizona State liability.
For more information on how to take a QCD or how to file your taxes once you make a QCD, please contact your IRA Trustee.