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Qualified Charitable Distributions in the Wake of Tax Reform

Qualified charitable distributions (QCD) have been a key component of many tax strategies since they were first introduced in 2006. Up until the passage of the Tax Cuts and Jobs Act (TCJA), QCDs were employed by many taxpayers to simultaneously make charitable donations and meet the required minimum distributions of their individual retirement accounts.

However, with the advent of the TCJA, QCDs remain an important tax strategy, but for different reasons. Since the TCJA included a near doubling of the standard deduction and a cap on itemized SALT deductions, many fewer taxpayers now plan to itemize deductions than before. This means that for most, charitable donations will no longer give them a tax deduction. However, by using a QCD, some taxpayers will be able to realize tax savings.

For taxpayers age who are taking the required minimum distributions from their IRAs, QCDs are a great option. When using a QCD, the distribution is omitted from the taxpayer’s adjusted gross income (AGI). Since a higher AGI can trigger both additional taxes and the reduction of certain deductions, seeking to lower one’s AGI is a great strategy for tax savings. Please note that in order to adhere to QCD guidelines, donations must go directly to a charity; gifts to private foundations or donor advised funds are not eligible for QCD treatment.

For a full list of QCD Requirements and considerations, check out this helpful article from the Journal of Accountancy.