Have I got a tax dodge for you (assuming you're 70 years old like us)
When the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction allowable beginning with 2018 taxes, Carol and I joined many other taxpayers in simply taking the standard deduction rather than itemizing our charitable donations. Theoretically, at least, that removed a significant motivation for charitable giving by eliminating any savings on taxes.
But it turns out there’s another way the IRS can help us do the right thing.
Since both Carol and I celebrated our 70th birthdays in the final quarter of 2018, we’re required by law to begin taking what’s known as Minimum Required Distributions from our Individual Retirement Account savings during 2019 and every year following.
It’s at that point that the IRS collects the tax it allowed us to avoid on income we funneled into IRAs during our days of full-time employment. But if you get your financial institution to send a portion of your required withdrawal from your IRA directly to a non-profit that qualifies for tax deductible donations, no taxes will be due on the amount you donate. This only works if the money goes directly from your IRA to the charity. If the money is distributed to you and you then make the donation, you’re required to pay taxes on it.
Setting this up was pretty simple. All it took was providing our financial institution (where our IRAs are managed) with the name and address of the organization we want to contribute to, and an electronic signature authorizing the donation.
I have Nils Klinkenberg to thank for alerting me to this option. Nils is the executive director of the Beacon Hill Friends House where Carol and I lived 2013-2015 and where I've chaired the board for the past year. Among the ways he looks out for the house is by staying current on IRS rules governing charitable giving.
First on our list of recipients as we dove into this loophole earlier this year? Beacon Hill Friends House!
Who's on your list?