Top Tips 2025: Supporting a Local Charity with a Tax-Smart Strategy

Do you currently make, or do you plan to make any charitable contributions this year or in the future (church, school, community service organization, etc.)?  Or do you know someone who does? 

If yes, please keep reading. 

While meeting with a good client of JFP’s recently, they asked me if there was a good way to “spend down” their IRA account without having to pay tax on it.  The Tax Cuts and Jobs Act (TCJA) that was passed in 2017 increased the standard deduction that a taxpayer can claim on their tax return by almost double the previous levels.  For most taxpayers, this meant that it no longer made sense to itemize tax deductions on Schedule A of your tax return because, in most cases, the standard deduction was larger than most people’s itemized deductions.  Charitable contributions are included in itemized deductions.  What this effectively means for most taxpayers is that your charitable contributions that were tax deductible in the past, became non-tax deductible.

Here's the punchline...

If a taxpayer is age 70 ½ or older and has an IRA, they can make a Qualified Charitable Distribution (QCD) to a charity directly from their IRA.  The amount of the distribution is excluded from taxable income, making it a tax-free donation.

Real life example: Tom, a 72-year-old retiree, is currently taking a monthly income of $2,000 from his IRA to supplement his monthly Social Security retirement check of $2,000.  Out of this total monthly income of $4,000, he contributes $400 per month to his church.  The $400 monthly contribution that he makes to his church, is not tax-deductible because he claims the standard deduction on his tax return.  Tom reaches out to his Financial Advisor at JFP and is informed that if he were to have JFP send $400 of his IRA distribution directly to his church and the remaining $1,600 per month to him, the $400 would become tax deductible and will save him on his tax bill at the end of the year.

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