We are nearing the end of 2019 and the opportunity to give for this year. If a person has reached the age of 70.5 they can make cash donations to charities that are approved by the IRS that are outside of the scope of their IRA. These qualified charitable distributions will allow a person to reduce their tax liability and save money when it comes to filing their income tax.
The Qualified charitable distributions can be donated from the traditional IRA fund and they will not be subject to federal income tax. A person is not able to itemize these deductions but since they do not have to pay income tax on this amount many financial experts stated that things even out.
To be considered as a qualified charitable distribution there are certain guidelines that the organization needs to meet. A person cannot make this tax free gift if they are under 70.5 years of age. The donation must go directly to the charity and any benefits to the donor cannot be counted in the tax-free amount. If the amount of money was not donated to the charity it would be taxed as income. A person can still claim this benefit if they meet the age requirement and they inherited the account from someone deceased. Each year a person cannot donate over $100,000 without paying income tax. A person can their spouse can each donate this amount if their IRA accounts are separate.
The money donated to the charity does not go towards a person’s adjusted gross income. This can help reduce a person’s tax liability and can even help put them in a lower tax bracket. This deduction can fit into the charitable donations where others may not count on the taxes. The Tax Cuts and Jobs Acts allows a person to reduce the charitable donations if the amount is higher than the standard deduction rate.
The qualified charitable amount will meet the required minimum distribution rules and a person can donate up to $100,000 that they would otherwise need to pay taxes on. A person must take this deduction once they have reached the age of 70.5 or they may face a 50 percent penalty for waiting too long to file.
The amount that is donated to the charity will be deducted from the taxpayer liability. Some amounts will be left in the IRA that are not taxed and this amount can be taken out of the account at a later time. The amount donated can also reduce the taxable estate tax but this tax does allow a person to make millions and not have to worry about this liability.
A person can benefit from the qualified charitable distribution if they do not plan to itemize their deductions on their taxes and their regular charitable giving does not give them enough of a deduction. Giving to the charities will also allow a person to reduce their income and pay fewer taxes.
It is possible to reduce tax liability legally from an IRS if a person gives the money to charity. They need to make sure the requirements are met to see the deductions and reduce their income tax liability.
Reference:
https://www.marketwatch.com/story/beat-the-system-with-charitable-donations-from-your-ira-2019-03-11
Investment Advisory Services offered through Retirement Wealth Advisors (RWA), a Registered Investment Advisor. Pennsylvania Wealth Management and RWA are not affiliated. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.
This information is designed to provide general information on the subjects covered, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Pennsylvania Wealth Management and its affiliates do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.
Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurer. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims‐paying ability of the issuing company and are not offered by Retirement Wealth Advisors.
Million Dollar Round Table (“MDRT”) is a membership organization. Qualifying criteria for membership includes attaining specified levels of commissions earned, premiums paid or income earned on the sale of insurance and other financial products. MDRT membership requirements include the payment of annual dues, compliance with ethical standards, and maintaining good standing with an MDRT-approved professional association. The MDRT logo and/or trademarks are property of their respective owners and no endorsement of Jason Bergey or Pennsylvania Wealth Management is stated or implied. MDRT and Retirement Wealth Advisors, Inc. (RWA) are not affiliated.