Many people ask “How can I give to charity and reduce my taxes at the same time?” With the increase in the standard deduction in 2018, not many senior citizens itemize and therefore can get a tax reduction from making charitable contributions. Two strategies to consider when making charitable contributions are outlined below.
If you use the standard deduction, you can deduct up to $300 per person for you and your spouse only as an extra charitable deduction on your federal tax returns for 2021. This amount is over and above the standard deduction.
But what if you wish to give more than that $300 per person? If you are age 70 ½ or older you may make qualified charitable distributions, up to $100,000 per year, from your Individual Retirement Account (IRA) to qualified 501(c)3 charitable organizations and exclude those distributions from federal taxes. In Ohio, you can also exclude the amount from Ohio taxes. This basically allows you to “deduct” the amounts.
The amounts must be distributed from your IRA directly to the charity. The amounts can not come to you first. Consult with your broker holding your IRA funds on the procedures they require from you in order to make these distributions. Some brokers will ask for a list and will make the distributions directly to the charity. A few brokers set up checking account privileges and the amounts can be written by you and mailed by you using a special checking account. You must still keep track of the amounts disbursed and report them on your income tax returns.
Many people use a portion of their required minimum distributions (RMD) to make these charitable contributions. Although age for RMD’s has been raised, the age for making qualified charitable distributions remains at 70 ½.