The tax-free qualified charitable distribution provisions were renewed this year, but the deadline for your contributions is December 31, 2011.
This provision allows individuals 70 1/2 years and older to exclude from their gross income up to $100,000 of their qualified charitable distributions (QCDs) when paid directly from their IRA or Roth IRA to a qualified charitable organization.
The QCD amount may also be used to satisfy any outstanding required minimum distributions (RMD) that an individual must otherwise receive from their IRAs for 2011.
To be considered a qualified charitable distribution, the charity must be set up as a 501(c)(3) organization under IRS guidelines and the IRA trustee must make the payment directly from the IRA account to the qualified charity. Any distribution that is received by the IRA owner prior to delivery to the charity cannot qualify.
An important note: QCDs cannot be made from Simplified Employee Pensions (SEP-IRAs), Savings Incentive Match Plans for Employees, or from 401(k) plans or 403(b) plans.
In addition, the IRS has given married couples the chance to double the QCD amount that may be excluded from their gross income. A couple filing jointly on their tax return has the option to exclude $100,000 per spouse; that’s a whopping $200,000 before the end of the year.
Another benefit of this tax-free treatment is that the $100,000 maximum QCD will not apply to an individual’s overall charitable deduction limit.
This means that you can exclude from your gross income up to $100,000 through QCDs and still be able to make regular charitable contributions up to 50% of your adjusted gross income.
You cannot, however, deduct QCDs as a charitable contribution.
You might be asking why this is so important. The answer is simple; it’s less paperwork to deal with and less time consuming, it makes the process of giving to charity less expensive, and it offers a tax-effective strategy for taxpayers who want to make charitable contributions but choose not to itemize deductions (i.e. take the standard tax deduction).
This provision is a great way for individuals to dramatically lower their pre-tax dollars and a great incentive to give to charity before the year is up.