- Do you want to help fund the wonderful conservation work of the KMLT?
- Do you like to save money, especially money you would have to pay to the government?
- Are you required to take annual required minimum distributions (RMD’s) from your IRA?
If you answer yes to all three questions, we may have a way to make this happen for you. Consider donating to the KMLT under the tax breaks provided through a “Qualified Charitable Distribution,” often referred to as a QCD. If I have your attention about saving money, you probably have some questions about QCDs. Below is a panel of Questions and Answers on some of the key highlights.
(Q) What is a Qualified Charitable Distribution, or QCD?
(A) A QCD is a donation you make to a 501 (c) (3) Charitable Organization such as the KMLT where money from your Traditional IRA account goes directly to your designated charity like the KMLT. You never receive or have access to these funds.
(Q) Can everyone make a donation through a QCD?
(A) No, only those taxpayers who are required to take an RMD are allowed to make a QCD donation.
(Q) Does a QCD reduce the amount I am required to take that year as part of my RMD?
(A) Yes, the amount of the QCD reduces, dollar for dollar, the amount of your RMD that you would have had to include in your income.
(Q) How does that help me save on my taxes?
(A) A QCD from your IRA is not income to you. However, on the flip side, since you did not include this distribution in income, you are not allowed a charitable deduction for the donation.
(Q) I can see that it helps taxpayers who don’t itemize, but I still itemize, so how does it help me?
(A) The normal donation from your regular checking account reduces your Federal Taxable Income which reduces only your Federal Income Tax, but it does not reduce your Adjusted Gross Income (AGI). Depending on your particular tax situation, reducing your AGI may also help reduce your 3.8% Net Investment Income Tax, your State Income Tax, and your Medicare Premiums. It also may help reduce your Federal Income Tax by increasing your Medical Expense Deduction.
(Q) How does it save on my Medicare Premiums?
(A) Your annual Part B and Part D Medicare Premiums are based on your AGI plus Municipal Bond Interest from the tax return you filed two years ago. For example, if your 2018 married jointly filed tax return reported $174,000 of AGI and $0 Municipal Bond Interest, you and your spouse’s 2020 monthly Medicare Part B & Part D Premium would be $1,735 each. If your AGI rose by $1 in 2018 to $174,001, your monthly 2020 Medicare Part B & Part D Premium would be $2,575, an increase of $840 for each. If it rose to over $218,000, your 2020 monthly Medicare Part B & Part D Premium would be $4,688, an increase of $2,113 for each. There are additional higher levels of premiums at higher levels of AGI.
(Q) Is my maximum QCD the same amount as my RMD for that year?
(A) No, you can make up to $100,000 in QCD contributions each year, regardless of your actual RMD. Your spouse, if also subject to an RMD, can also make up to $100,000 in QCD contributions each year.
(Q) How do I make a Qualified Charitable Distribution?
(A) Contact your IRA Custodian. Tell them you want to make a Qualified Charitable Distribution from your IRA to the KMLT and you want to receive the forms or the link to the online forms to request one. All IRA Custodians should be well aware of this tax provision and should have a procedure in place for it. Our address to receive your generous QCD is N7511 Sterlingworth Dr., PO Box 176, Elkhorn, WI 53121.
If you want to find out how this tax provision can help you, please consult your tax advisor as we cannot offer tax advice. If you have any questions related to sending a QCD to the KMLT, please give us a call at 262.949.7211 or send us an email at email@example.com. We will be happy to guide you through it.
The author of this article is Joseph G. Ferrari, a practicing CPA for over 40 years. Joe earned his Master of Science in Taxation and his Master in Business Administration degrees from DePaul University in Chicago. Joe is a Senior Consultant at Warady & Davis, LLP in Deerfield, IL and is a retired Adjunct Professor in The School of Accountancy at DePaul University.