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Maximizing Tax Deductions Through Charitable Contributions

Maximizing Tax Deductions Through Charitable Contributions

March 26, 2024

Individuals over 70½ can obtain income tax benefits from charitable contributions through qualified distributions from an IRA, even if they opt for the newly enhanced standard deduction.

The percentage of taxpayers claiming charitable deductions on their tax returns has dropped for the fourth consecutive year, as reported in the "Giving USA 2022: The Annual Report on Philanthropy." This decline is primarily attributed to the Tax Cut and Jobs Act (TCJA) of 2017. The TCJA led to a significant increase in the standard deduction, from $6,350 in 2017 to $13,850 in 2023 for individuals, and from $12,700 to $27,700 for married couples filing jointly. As a result, fewer taxpayers are itemizing their deductions, making it less likely for charitable contributions to be tax-deductible.

However, there is a silver lining for individuals over the age of 70½. Qualified charitable distributions (QCDs) from their IRA accounts offer a way to donate to charity while still receiving tax benefits. QCDs allow individuals to donate up to $100,000 annually from their retirement accounts to qualified charities. This can be particularly beneficial for those who no longer itemize their deductions but still want to support charitable causes.

Furthermore, QCDs can have an additional advantage for high-income earners, as they may help reduce Medicare premiums. For couples over 70, whose income exceeds certain Medicare income thresholds, a QCD could lower their adjusted gross income, potentially reducing their Medicare premiums by thousands of dollars.

However, there are technical requirements that must be met for a QCD to qualify for special treatment. The distribution must be made directly to the charity from the IRA account, and the charity must be a qualified 501(c)(3) organization.

In conclusion, while changes in tax laws have made traditional charitable deductions less accessible to many taxpayers, QCDs remain a valuable tool for those over 70½ who wish to support charitable causes while still enjoying tax benefits and potential savings on Medicare premiums.

Source: https://www.medicareinteractive.org/get-answers/medicare-health-coverage-options/original-medicare-costs/part-b-costs-for-those-with-higher-incomes

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 5280 CARROLL CANYON ROAD, SUITE 300, SAN DIEGO CA, 92121, 619-6846400. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. WestPac Wealth Partners LLC is not an affiliate or subsidiary of PAS or Guardian. Insurance products offered through WestPac Wealth Partners and Insurance Services, LLC, a DBA of WestPac Wealth Partners, LLC. CA Insurance License Number - 0B50924. | Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice.  Consult your tax, legal, or accounting professional regarding your individual situation. 2024-170358 Exp. 03/26