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Getting more “bang” for your charitable donation “buck”

by Paul Dreher, Financial Advisor, The Retirement Planning Group

Many folks hold a nonprofit organization near and dear to their heart. And of course people are often  compelled to show benevolence through volunteering time or making financial donations. But, now more than in the past there are some factors to consider when making a financial donation that could make the tax advantages greater.

One result of the 2017 Tax Bill was the greatly increased standard income tax deduction. For many people this resulted in no longer itemizing their tax deductions, which may have previously included charitable contributions. One way to still ‘get the most bang’ for your charitable buck is to make a Qualified Charitable Distribution (QCD) as a portion of a Required Minimum Distribution.

For example, John is 75 years old and has a Required Minimum Distribution amount of $30,000 for the year 2019. He can donate $10,000 directly to a 501c3 recognized organization tax-free and thus reduce his taxable income for the year by the $10,000. John would receive a check made payable to the charitable organization then would indicate his donation on his tax return.

Conversely, if John received his full Required Minimum Distribution of $30,000 as a withdrawal made payable directly to himself then donated $10,000 to a charity he may not actually reduce his taxable income. If he, like millions of people now, is taking his standard deduction as a single individual of $12,200 his taxable income would be reduced by the standard deduction amount and not by the additional $10,000 he gave to charity.

Thus, in John’s case the QCD allowed him to take his reduction of taxable income from the standard deduction and the charitable donation for a total reduction of $22,200.

A few things that John needs to keep in mind are:

  • He must have fully reached age 70.5 before he makes a Qualified Charitable Distribution
  • The maximum annual exclusion for a QCD is $100,000/year for an individual
  • If he has non-deductible money co-mingled with deductible money in his IRA only the deductible dollars qualify for the QCD
  • He should consult his tax preparer and/or financial advisor if he has those relationships

Kansas City Hospice is KC’s original hospice and one of the very few out of the 40 plus hospices in the area that are nonprofit. Every dollar donated to Kansas City Hospice remains right here in the greater KC area. Each donation, large or small, helps provide expert, compassionate care to the people of Kansas City. From the youngest child to the oldest of senior citizens, Kansas City hospice cares for the community.

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The mission of Kansas City Hospice & Palliative Care is to bring expert care, peace of mind, comfort, guidance, and hope to people who are affected by life-limiting illness or by grief. And, our vision is that each person in our community is valued from life through death and each family is supported in their grief.

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