By Jim Glass, J.D.
This is the season for charitable giving. And this year it is especially so for those who want to get the most tax benefit from charity deductions before new Tax Cuts and Jobs Act becomes law. The Act effectively reduces the tax-saving value of the charitable contribution deduction for many.
While details may change, at this writing the Act increases the standard deduction on joint returns to $24,000 from $12,700, on single returns to $12,000 from $6,350, and eliminates many popular itemized deductions. Because taxpayers claim itemized deductions only when their total exceeds the standard deduction, lawmakers project that under the Act the number of taxpayers who itemize deductions may be reduced by half or more.
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The qualified charitable distribution (QCD) provision was originally enacted into law as part of the Pension Protection Act of 2006. It was effective from August 17, 2006 through the end of 2007. And since then, it has been a yearly song-and-dance that has eventually resulted in a last-minute, or even retroactive, extension. However, thanks to the newly-signed PATH Act, QCDs are now permanent.
There are a couple of things you should know about QCDs. First, they are not distributions payable to the IRA owner. They are direct transfers of funds from an IRA to a qualifying charity. An individual who takes a distribution payable to himself and then makes a charitable donation cannot use the QCD provision. It should really be called a QCT – qualified charitable transfer – but Congress called it a QCD. Second, it was intended to be a temporary provision. It was supposed to expire at the end of 2007. Because of this, there is no required reporting on the part of the IRA custodian. IRS did not see a need to amend the 1099-R form for a temporary provision. All the tax reporting is done by the individual. The IRA custodian simply issues a 1099-R showing a normal distribution