We are nearing the end of 2019 and the opportunity to give for this year. If a person has reached the age of 70.5 they can make cash donations to charities that are approved by the IRS that are outside of the scope of their IRA. These qualified charitable distributions will allow a person to reduce their tax liability and save money when it comes to filing their income tax.
The Qualified charitable distributions can be donated from the traditional IRA fund and they will not be subject to federal income tax. A person is not able to itemize these deductions but since they do not have to pay income tax on this amount many financial experts stated that things even out.
To be considered as a qualified charitable distribution there are certain guidelines that the organization needs to meet. A person cannot make this tax free gift if they are under 70.5 years of age. The donation must go directly to the charity and any benefits to the donor cannot be counted in the tax-free amount. If the amount of money was not donated to the charity it would be taxed as income. A person can still claim this benefit if they meet the age requirement and they inherited the account from someone deceased. Each year a person cannot donate over $100,000 without paying income tax. A person and their spouse can each donate this amount if their IRA accounts are separate.
The money donated to the charity does not go towards a person’s adjusted gross income. This can help reduce a person’s tax liability and can even help put them in a lower tax bracket. This deduction can fit into the charitable donations where others may not count on the taxes. The Tax Cuts and Jobs Acts allows a person to reduce the charitable donations if the amount is higher than the standard deduction rate.
The qualified charitable amount will meet the required minimum distribution rules and a person can donate up to $100,000 that they would otherwise need to pay taxes on. A person must take this deduction once they have reached the age of 70.5 or they may face a 50 percent penalty for waiting too long to file.
The amount that is donated to the charity will be deducted from the taxpayer liability. Some amounts will be left in the IRA that are not taxed and this amount can be taken out of the account at a later time. The amount donated can also reduce the taxable estate tax but this tax does allow a person to make millions and not have to worry about this liability.
A person can benefit from the qualified charitable distribution if they do not plan to itemize their deductions on their taxes and their regular charitable giving does not give them enough of a deduction. Giving to the charities will also allow a person to reduce their income and pay fewer taxes.
It is possible to reduce tax liability legally if a person gives the money to charity. They need to make sure the requirements are met to see the deductions and reduce their income tax liability.
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