AN INTERESTING QUESTION

Jana M. Luttenegger Weiler of the Davis Brown Law Firm reminds us “No RMDs to Charity for IRAs in 2015 (yet)” at JD SUPRA BUSINESS ADVISOR.

Jana explains –

“In prior years, starting in 2006, Congress established a QCD {Qualified Charitable Distribution – rdf}, allowing IRA owners to directly transfer up to $100,000 from their IRA to a charity, tax-free, as part (or all) of their RMD for the year. A QCD is not taxed to the account holder as income, meaning less tax for the account owner, and a higher donation to the charity. The QCD expired at the end of 2007, but in most years since, Congress has extended the provision, typically one year at a time, but it has not yet been extended for 2015.”

If this “tax extender” is in effect for 2015, a QCD would be applied to the amount of one’s RMD – you could even use the entire RMD as a QCD – but, as Jana told us, it is not included in the gross income of the donor, as a normal RMD would be.  So it does not increase AGI, and therefore does not potentially increase taxable Social Security or Railroad Retirement benefits or reduce the multitude of deductions and credits that are reduced or phased out as AGI rises.  The donor is not allowed to claim a charitable deduction for the amount of the QCD – but that is understandable and does not “hurt” the donor taxwise.

What happens if the idiots in Congress do not extend this worthwhile tax benefit?  The result would be that the full amount of the RMD, whether or not transferred to a qualifying charity, would be included in gross income, increasing AGI, and the donor would be allowed to claim a charitable deduction for the amount of the transfer.  While not the optimal outcome, it is not a bad one. 

So the question is - Should donors age 70 ½ and over just do a QCD now anyway, and gamble that the idiots in Congress will once again eventually extend all of the tax extenders at the last minute? 

My answer would be “yes”.  By waiting too long you may miss out on the opportunity, and there is really nothing to lose by taking this action.

Obviously this assumes that the donor wants to make the charitable contribution, and would do so anyway, perhaps out of liquid cash, whether or not the tax benefit existed.

Fellow tax professionals – do you agree or disagree?

TTFN