Retirement Specialist With Over 40 Years Of Retirement Planning Experience
The Tax Cuts and Jobs Act nearly doubled the standard deduction beginning in 2018 and indexed it annually for inflation through 2025 ($12,950 for single taxpayers and $25,900 for joint filers in 2022; $13,850 and $27,700 in 2023). The result was a dramatic reduction in the number of filers who itemize — from 30.6% of all returns in 2017 to 9.5% in 2020.1
As the number of itemizers fell, so did the amount individuals gave to charities as a percentage of total annual contributions. According to Giving USA, the total amount dropped below 70% for the first time ever in 2018 and remained there through 2021.2
Although the primary motivation for charitable giving usually comes from a desire to give back, an associated tax break can be a strong supporting factor. If you are an IRA owner who is 70½ or older, you may be pleased to learn that you can give to charity without itemizing and still get a tax break through what’s known as a qualified charitable distribution (QCD).
Generally, distributions from traditional IRAs are subject to federal income tax, unless an exception applies. Qualified charitable distribution (QCD), however, are excluded from income and therefore won’t affect your tax obligation. Moreover, once you reach age 72, a qualified charitable distribution (QCD) can satisfy all or part of your required minimum distribution (RMD), which otherwise could substantially increase your taxable income for any given year.
To make a qualified charitable distribution (QCD), you would direct your IRA trustee to issue a check made out to a qualified public charity. You may contribute up to $100,000 from your IRA; if you’re married, your spouse may also contribute up to $100,000 from his or her IRA.
A qualified charitable distribution (QCD) must be an otherwise taxable distribution from an IRA. If you’ve made nondeductible IRA contributions, then each distribution normally carries with it a pro-rata amount of taxable and nontaxable dollars. If you have multiple IRAs, they are aggregated to determine the calculation. With a qualified charitable distribution (QCD), the pro-rata rule is ignored, and taxable dollars are treated as distributed first.
Private foundations, donor-advised funds, supporting organizations (as defined by the IRS), charitable gift annuities, and charitable remainder trusts are ineligible to receive qualified charitable distributions (QCD).
1) IRS, 2022 (most recent full-year data )
2) Giving USA, 2022