As you know, the standard deduction for 2018 is being increased substantially.  For MFJ (both under 65) in 2017, it was $12,700.  In 2018, it increases to $24,000.  If MFJ and both are over 65, the additional $1300 per spouse brings the 2018 standard deduction to $26,600.  

This dramatic increase in the 2018 standard deduction could allow millions of taxpayers to use the standard deduction instead of itemizing, but then they might lose out on the tax benefit of deducting large charitable contributions (such as to a church).

This makes the QCD (Qualified Charitable Distribution) from an IRA much more worthy of consideration.  It's a way of making a charitable contribution, but not needing to itemize deductions to receive a tax benefit.  And, QCDs can also be used to fulfill the RMD from an IRA for those over 70˝.

Suppose Walter, a single taxpayer over 65, itemized deductions in 2017 totaling $10,000 (which included $6000 charitable to church). His standard deduction in 2017 was only $7900 (6350+1550), so he was better off itemizing in 2017 (10,000 vs 7900).  

    In 2018, his standard deduction will be $13,600 (12,000+1600).  If his 2018 itemized deductions are similar to 2017 ($10,000), he wouldn't be able to itemize in 2018 since the standard deduction is much higher (13,600 vs. 10,000).

    However, if he does a QCD from his IRA in 2018 of $6000, he won't be taxed on that amount of the IRA (which is equivalent to deducting the $6000 donation directly from income), and use the $13,600 standard deduction. Without the QCD, he would not be able to receive a tax benefit from his $6000 charitable donation.

Suppose Sam and Mable, both over 65, itemized deductions in 2017 totaling $18,000 (which included $10,000 to their church).  Their 2017 standard deduction would have been just $15,200 (12,700+1250+1250).

    In 2018, their standard deduction will be $26,600. Deductions of about $18,000 would not be enough to itemize. 

    However, if they choose to do a $10,000 QCD in 2018, they will be able to take the best tax advantage for their charitable contributions.

Hopefully, tax preparers are alerting their clients to this opportunity (if the clients regularly make eligible contributions anyway).  

 

Note: The possibility of “doubling up” in future years should also be considered for those taxpayers who may lose out on itemized deductions beginning 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

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