The new tax laws, which were implemented last year, will change the way many Americans file their taxes. A tax filer has the option each year of either choosing standard deduction or itemizing their deductions. The new tax laws dramatically increased the standard deduction. As a result, fewer families will be itemizing their deductions.
Historically, if you made charitable donations you would take those donations as an itemized deduction. Under the new rules, if you are now taking the standard deduction, you may not see any tax break for your charitable contributions. This is bad news for many nonprofits, like churches, which rely heavily on charitable contributions.
However, there is still an opportunity for retirees who are required to take annual Required Minimum Distributions from IRA accounts. The opportunity is called a Qualified Charitable Distribution. This is a distribution from your IRA financial institution directly to the charity.
If done correctly, the distribution does qualify as your Required Minimum Distribution, but does not count as gross ordinary income. Lower gross income results, of course, in a lower tax bill. The result is that you can take the new larger standard deduction and still receive a tax break for your charitable donations. There are pitfalls to avoid and you should consult with your financial professional to ensure the transfer is done correctly.
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