It’s Time to Plan Your 2020 Tax Moves!

Written by Rick Huff

If you are at least age 70 1/2 and you have an IRA, you can REDUCE YOUR TAXES by making charitable contributions directly from your IRA.

As Halloween passes in the rearview mirror, college basketball is starting, cooler weather is driving us to warmer clothing, and we’re getting ready for Thanksgiving, we will then face the merriment Christmas holidays bring.

It is too easy to get caught up with the busyness of life that always seems to accompany this time of year. And it is precisely this busyness that too often causes us to miss tax planning opportunities that can save us big bucks.

Preparation is the key that unlocks money-saving opportunities that proper tax planning allows. The one huge opportunity that so many seniors with IRAs should take advantage of is titled Qualified Charitable Distributions, or QCDs for short.

As a senior age 70 1/2 and above, with an IRA, you are required by our friends at the U.S. Treasury to withdraw a calculated amount each year. These withdrawals are called Required Minimum Distributions, or RMDs for short. These RMDs are calculated to increase each year as the senior ages. The logic behind the calculation of RMDs is to have the entire balance withdrawn by the time the senior reaches age 115, if we are unfortunate enough to live that long.

As you might surmise, these RMDs drive up your total income along with your taxable income.

Enough with the basics; the planning opportunity used to avoid unnecessary taxation is contributing RMDs directly to your favorite charities, in the form of Qualified Charitable Distributions directly from your IRA.  QCDs have become significantly more advantageous to seniors with IRAs because the standard deduction has increased so much that it has eliminated the tax benefit of charitable contributions for a high percentage of senior taxpayers.

Having RMDs going directly to your charity reduces the income on the front of your return. Obviously, this will decrease your taxable income, along with your tax liability. However, there are other savings possible; remember — decreased income on the front of your return could potentially:

• Reduce the taxation on capital gains and dividends
• Reduce the taxation on Social Security benefits
• Reduce the cost of premiums on your Medicare Part B coverage

This is a win-win-win situation! There are no downsides to utilizing QCDs. But why is now the time to start planning?

Seniors receiving RMDs who want to take advantage of the tax benefits of QCDs need to plan and prepare now for the year 2020.

Get an idea of your current IRA balance and estimate what your RMD will be for the year 2020. The custodian of your IRA account should assist you in this process. If they won’t or can’t, talk to your CPA/tax preparer/financial advisor regarding this tax planning strategy.

Alert your IRA custodian that you want to do a qualified charitable distribution in the year 2020 and have the form ready for you to execute in January of next year. If you’re married, discuss with your spouse how much in charitable contributions you want to give for the year 2020. Compare that amount and your RMD to determine how much you want to give via a QCD.

Once you set everything in motion with the IRA custodian, inform your charity to be expecting the check. Notify your tax preparer also; he has special reporting to do on your tax return.

Why am I adamant about planning now? Several reasons; time has a way of getting away from us and we forget to take advantage of planning opportunities. Case in point – I did a session on QCDs at a local church on Valentine’s Day this year. I was amazed at how many people had either:

• Already contributed their entire amount to the church for the year
• Already taken their RMD for the year

AND . . . if you’re a senior in this situation and haven’t taken your RMD and still want to make a charitable contribution, it’s not too late for you to take advantage of the opportunity for this tax year 2019.

Follow the process I outlined above and do it now!

Happy tax savings!