Beat The Clock -Last Minute Qualified Charitable Deductions

Congress has passed the “extenders bill” for 2014 (the Tax Increase Prevention Act of 2014).  President Barack Obama just recently signed this into law.  This bill revived qualified charitable distributions (QCDs) for 2014 only.  There are NO transitional rules allowing 2014 qualified charitable deductions to be made in 2015 so you must get your 2014 it done before the end of 2014.  That gives us very little time to get this done.

Here’s a quick review of the general rules for qualified charitable deductions.

  • Only applies to IRA owners or beneficiaries age 70½ and over and is capped at $100,000 per person, per year.
  • Only applies to direct transfers of IRA funds to charities and not gifts made to grant making foundations, donor advised funds or charitable gift annuities.
  • No split interest gifts of any type will qualify        Applies to IRAs, Roth IRAs and INACTIVE SEP and SIMPLE IRAs. It does NOT apply to distributions from any employer plans
  • The charitable donation from an IRA will satisfy a required minimum distribution, but the IRA distribution is not includable in income
  • No tax deduction can be taken for the charitable contribution
  • For a married couple where each spouse has their own IRAs, each spouse can contribute up to $100,000 from their own IRAs.
  • If more than $100,000 is withdrawn from the IRA and contributed to a charity, there is no carryover to a future year. The excess is taxable income and a charitable deduction can be claimed if the taxpayer itemizes
  • The contribution to the charity would have had to be entirely tax deductible if it were not made from an IRA. There can be no benefit back to the taxpayer
  • The distribution from the IRA to a charity can satisfy an outstanding pledge to the charity without causing a prohibited transaction
  • The charitable substantiation requirements apply
  • QCDs apply only to taxable (pre-tax) amounts. This is an exception to the pro-rata rule.
Unfortunately there is not much time to allow for these charitable deductions.  For those who have already taken their distributions, in past years we were allowed to designate these after the fact.  We may want to look into these possibilities if this applies for you.

Nick Hughes is a Wealth Advisor with Franklin Wealth Management, a registered investment advisory firm in Hixson, Tennessee. In addition to advising clients since 2007, he has contributed to articles for Market Watch and and is a regular contributor to the Franklin Backstage Pass blog.  

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