Capitol Hill approved the Tax Extenders Package, better known as The Tax Increase Prevention Act in late December. One of the most talked about provisions of this Act was the extension of tax-free distributions from an IRA for charitable purposes through December 31, 2014 (called a Qualified Charitable Distribution (QCD)).
A QCD is a very common tax savings strategy. Basically a taxpayer who is 70.5 is subject to required minimum distribution rules and at the very least must take a specific and calculated distribution from their IRA each year. A QCD allows a taxpayer to satisfy the required distribution rules if they elect to donate their distribution, up to $100,000 per taxpayer, directly to a qualified charity. The benefit to the taxpayer is the amount donated to charity through the IRA distribution is not included in his or her gross income. Generally, amounts that can be excluded from gross income rather than as an itemized tax deduction on Schedule A result in a better tax benefit to the taxpayer. QCD’s qualified charities do not include community foundations, private foundations or other donor-advised funds.
While this is great news for the 2014 tax year, what is going to happen in 2015? Will you have to wait until the end of the year again to see if Congress extends this provision and scramble to make your Qualified Charitable Distribution?
A taxpayer can work with their financial advisor to follow the QCD rules and make a distribution directly to charity. In other words, make your donation today on the presumption the QCD benefit for taxpayers will be retroactively extended through December 31, 2015. If Congress does extend the tax provision one more year, you will have already acted in advance preventing the last minute rush at year-end. You will receive the benefit of a QCD and effectively exclude the distribution from your gross income.
It is best to call Tax Alternatives at 615-742-1099 to discuss your options. Our Brentwood office is convenient to all at 109 Westpark Drive, Suite 240 Brentwood, TN 37027. Be sure to visit us here to sign up for special offers.
