In 2018 charitable contributions from individuals fell by 3.8%. Excluding the Great Recession 10+ years ago, charitable giving among individuals hadn’t declined that much since 1987. Recent tax law changes are the obvious culprit. As a result of the increase in the standard deduction, many taxpayers no longer benefit from itemizing deductions such as state income and property taxes and, yes, charitable contributions.
But there’s a smart way for some of us to fulfill our charitable goals and do so in a tax-efficient manner. As you probably know, distributions from IRA’s and other retirement plans must begin in the year in which you turn 70-1/2. Those distributions are included in income and taxed at ordinary income tax rates.
Any taxpayer who has reached the age of 70-1/2 can make his or her IRA required minimum distribution directly to a qualifying charity. That distribution is not included in taxable income, and even though there is no itemized deduction for the charitable contribution, the taxpayer still gets the full standard deduction, thus reducing overall income tax expense. Let us know if you’d like to learn more!