by: Jon Tidd, Esq
The following is adapted from a blog post on March 28, 2018. To subscribe to the Sharpe Group Blog, click here.
In the wake of 2017 tax law changes, the Charitable IRA gift is likely to be the gift of choice going forward for many Americans aged 70½ and older.
A good gift for non-itemizers
The Tax Cuts and Jobs Act of 2017 nearly doubles the standard deduction, raising it to $12,000 for individuals and $24,000 for married couples. Those numbers are $13,600 for singles over 65 and $26,600 for married couples. As a result, fewer taxpayers may find themselves meeting the threshold at which they could start itemizing deductions.
That’s why Charitable IRA gifts may become increasingly popular among those 70½ or older who are required to take distributions from their IRAs. By directing that those distributions be given directly to a charity, the donor doesn’t need to itemize deductions to save taxes. When arranged correctly, the qualified charitable distribution (QCD) isn’t taxed to the donor and the charitable distribution qualifies as all or a portion of their required minimum IRA distribution.
There can be some complications with giving in this way, however. For instance:
The IRS hasn’t issued guidance on when the QCD is complete for federal income tax purposes. For example, some IRA custodians have been known to make the QCD check payable to a charity but mail the check to the donor. The donor is then required to send the check to the charity. The IRS has allowed this practice but has not specified when the QCD is deemed to have been made.
In 2017, one IRA custodian made the distribution check payable to the donor instead of the charity, although the donor then proposed endorsing the check over to the charity. Under these circumstances the check was determined to be income to the donor.
IRA check-writing privileges also can cause problems. For example, in December 2017, a donor wrote a check to a charity on his IRA account and then hand delivered it to the charity. The charity, however, was short staffed during the holidays and didn’t deposit the check until January 2018. This one should qualify as a 2017 QCD but the IRA custodian is going to report it as a 2018 transaction because that’s all the information the custodian has. The federal government does not tax the QCD to the donor, but one state (New Jersey) does.
Most problems occur when donors try to rush gifts at the end of the year. Make sure to start communicating with donors about Charitable IRA gifts well before year-end to help them make the most of this very efficient way to give.
For more information about Charitable IRA gifts or other gift planning ideas, contact a Sharpe Group representative at 901.680.5300 or info@SHARPEnet.com. (See “Make the Most of Charitable IRA Gifts” for more details about how to communicate the benefits of giving through the Charitable IRA.) ■