The Science of Gifting

If you are age 70½ the federal government has given you a permanent gift with new legislation that may give you a break on your income tax. 

At that age, you must begin to take Required Minimum Distributions (RMD) from your IRA accounts.  Along with the distribution comes the tax bite.  During your working years, the tax deferral was welcome.  In your retirement years, with a fixed pool of assets, the tax bill is a bitter pill. 

The Consolidated Appropriations Act of 2016 made permanent Qualified Charitable Distributions in lieu of RMD distributions.  In simple terms, if you are at least 70½, you can donate up to $100,000 directly from your IRA to a qualified charity.  Gifts are made in pretax funds and can be assumed taken from multiple IRAs.  If you regularly give to a charity or religious institution, this is the right way to give.

You will not get a charitable deduction, but with itemizing, those deductions can be limited.  More importantly, you do not have to include the distribution in your adjusted gross income on your tax return.  This has a threefold benefit: 

  1. It will reduce your tax bill.
  2. It may eliminate or reduce taxation of Social Security benefits.  Depending upon your combined income, 2 up to 85% of your benefit can be taxable. 
  3. It can prevent Medicare premiums from rising.  Medicare premiums are based on a look-back of MAGI1 from the most recent tax return.

There are a few codicils:  the distribution must go directly to the charity; you cannot take possession of the funds first.  The charity must acknowledge the gift in writing.  You cannot donate to a charitable gifting fund you hold in your own name for future gifts.  This is meant for the immediate benefit of the charity. 

Another great way to gift is to donate appreciated securities from your non-retirement accounts.  These are stocks or funds you hold in your portfolio that have a low tax basis or cost.  Often we are reluctant to sell these appreciated positions to avoid imposition of capital gains tax.   This strategy will avoid the tax and will allow a full deduction on Schedule A at fair market value. 

Charitable donations are an important part of any lifetime plan.  There are complexities, but if you gift correctly, you can support your favorite charity and save some tax dollars.   As always, consult your tax and financial advisors. 

Contact us with questions regarding income tax breaks related to charitable giving.

1 MAGI – AGI from your tax return plus tax-exempt income.  For a joint filer, premiums rise if MAGI is over $170,000.

2 Combined income – Modified AGI plus one-half of your Social Security benefits.  Social Security is subject to taxation if combined income is over $32,000 for a joint filer. 

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice.  Please note that individual situations can vary.  Therefore, this information should be relied upon when coordinated with individual professional advice.           

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2024 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
SDWMA Named as one of the Nation’s Top DC Advisor Teams in 2024 by NAPA
Investment Corner with Jason & Sean: The Last Mile of the Inflation Race May Be the Hardest
Financial Planning for Blended Families
Investment Corner with Jason & Sean: Short-Term Yields Are Attractive… But are They Deceiving? 
Investment Corner with Jason & Sean: Japanese Stock Market
Holiday Spending and Budgeting
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us
Pittsburgh

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×