Making Charitable Distribution and Contributions from a Traditional IRA

Making a charitable distribution and contribution from a traditional IRA is an impactful way to give back. But, it’s essential to understand the tax implications of such a decision. So, what does one need to do in order to take advantage of this donation on their Form 1040?

To make a tax Qualified Charitable Distribution (QCD) from your IRA, you are in luck – Prior Tax provides a dedicated tax profession for free that ensures that this process goes smoothly from start to finish.

Prior Tax recognizes the importance of age in determining eligibility to make a Qualified Charitable Distribution. In order to help you report the distribution correctly on your return, you will be required to enter certain details from your Form 1099-R and answer a few questions afterward. Specifically, we ask whether any or all of the distribution was transferred to an approved charitable organization.

When completing Form 1040, you will see your distribution amount on line 15a, any taxable amount ($0 is the whole contribution given to charity), and the designation QCD on line 15b.

Changes to charitable distribution tax deceptions for 2022

Taxpayers Should Consider Modifications to Donations for 2022. Individuals interested in donating in the upcoming 2022 tax year should note the modifications to charitable giving tax deductions.

For 2022 tax returns, taxpayers will not be able to claim cash donations to charities from taking the standard deduction. This is unlike last year when married filing jointly could have a $600 deduction, and single filers were able to deduct up to $300 without itemizing. Contrary to 2020 and 2021, the special rules for above-the-line deductions have yet to be extended for this year, meaning that reducing taxes through charity contributions must be itemized.

This year, the limits for cash contributions have been adjusted. Instead of up to 100 percent of adjusted gross income as in the last two years, donors are now limited to a maximum of 60 percent.

Donations that are greater than the Adjusted Gross Income limits of the present year can be moved forward to the following five years. These carryover donations must abide by the initial proportion constraints in the following years and will be taken off once allowable offerings for the current year have been deducted.

NOTE: As a refresher, the charitable mileage rate has stayed at 14 cents per mile since last year. This figure is yet to be altered and remains the same throughout 2020.

Beware of recent trends in giving and charitable distribution. 

When considering making donations, it is important to be aware of contemporary gifting trends. Whereas contributions made directly to recognized non-profit organizations may be tax deductible, gifts given via websites such as GoFundMe pages, crowd-funding sites and Venmo/Paypal should not be assumed to qualify for deductions. To guarantee that a contribution will be eligible for a deduction, one can utilize Guidestar.org, which contains the necessary information required.

One must be mindful that tax deductions are only available for donations made to certain charities based in Canada, Mexico, and Israel, depending on an income tax treaty with the nation. Fortunately, there is still a way to donate toward international causes while also obtaining a deduction – by donating through U.S.-based charitable organizations that work on these causes you care about.

Charitable giving through your individual retirement account

Making a philanthropic impact through your personal retirement account is possible. Utilizing a Qualified Charitable Distribution (QCD), you can transfer up to $100,000 directly from your traditional IRA to a favored charity.

For those 70.5 years or older, Qualified Charitable Distributions (QCDs) can be incredibly advantageous. When you do not need the money from an IRA but have to take your required minimum distribution, this method comes in handy. Although the total amount transferred is not tax-deductible, any portion sent directly to charity will not be taxed as part of your income for that year. Additionally, it counts as part of your annual required minimum distribution funds.

Itemize with donor-advised funds

Consider itemizing with a donor-advised fund. For those wanting to make the most of their charitable donations, setting up a donor-advised fund can be an excellent way to benefit from tax savings.

Donor-advised funds give taxpayers the ability to:

• A charitable institution or financial firm typically manages gift funds and consists of donations from various donors. These funds are convenient to use while also being relatively affordable.
• Taxpayers who opt for a Donor Advised Fund gain the opportunity to do something quite advantageous – bundling all of their charitable giving into one calendar year to take tax advantage of itemized tax deductions.
• One of the advantages that donors have when using a Donor Advised Fund (DAF) is that they can transfer their money to a charity of their choice over time, even when they are not itemizing.

Need assistance claiming deductions from your charitable distribution this year? Get in touch with a dedicated PriorTax Tax Professional for free specialized help. Our dedicated tax experts can answer any questions you may need to keep up with your taxes.

This entry was posted on Thursday, June 22nd, 2023 at 8:00 am and is filed under Tax Deductions and Credits, Tax Tips and Tricks, Taxes for Prior Years. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.