Planning Perspectives - March 2019: Don't Forget the QCD!

2018 is the first year for tax filers to be impacted by the 2017 Tax Cut and Jobs Act (TCJA).  This law included many changes affecting business and individual filers.  For individuals, some of the more significant changes included increasing the standard deduction while limiting how much mortgage interest (for new mortgages) is deductible.  It also limited the amount of state and local taxes one can deduct on their Federal taxes.  We recommend consulting with a tax advisor to understand what the TCJA means for you.  With these big changes, we think this tax season will be one to remember for professional preparers and filers alike.


One attractive tax planning strategy that is not new to 2018, but may increase in relevance in future years, is the Qualified Charitable Distribution (QCD).  For those unfamiliar with the QCD, the IRS summarizes it this way:  

“Generally, a qualified charitable distribution (QCD) is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity.  The QCD can satisfy all or part of the amount of your required minimum distribution (RMD) from your IRA. For example, if your 2018 RMD is $100,000, and you made a $25,000 QCD for 2018, you would have had to withdraw another $75,000 to satisfy your 2018 RMD.”

We believe that the advantage of a QCD when one is going to make a charitable gift is simple:  it reduces your RMD and thus your ordinary income.  Also, because making a QCD does not preclude you from taking the standard deduction available to all filers who choose not to itemize, this allows filers to take the standard deduction and in effect receive a tax break for their charitable gift.      

Not surprising considering the tax code, we believe there are some important things to remember when contemplating a QCD.  For instance, you cannot take the IRA distribution in your name and then give it to charity.  Gifts must go directly from your IRA to the qualified charity.  To count against your RMD, it must also be part of those first dollars out.  Put another way, you can’t take a $100,000 RMD and later in the year take a $25,000 QCD that counts toward your RMD.  

In 2019, for those age 70.5 or older who plan to give to charity, we feel the QCD is something to consider.  As always, we look forward to answering your questions and would encourage you to discuss this option with your tax advisor.  Although, considering it is too late to impact your 2018 taxes, you may want to wait until after April 15th before approaching your CPA at which time the first round of the TCJA and all its changes will be completed!   

Disclaimer –
The opinions expressed herein are those of Woodmont Investment Counsel, LLC (“WIC”) and are subject to change without notice. Past performance is no guarantee of future results. Investments are subject to risk, and any of WIC’s investment strategies may lose value. Past performance is not indicative of future success. There is no guarantee of the future performance of any WIC account.