Tax Advantage

Tax Advantage Ways of Donating to the MDM

1. Using you Minimum Required Distributions out of your IRA as charitable contribution. Normally, when you take the RMD, it shows on your tax return as ordinary income. This way your custodian sends the money directly to the 501 C (3) organization. It does not show up as taxable income. Under the current tax law most people do not itemize any way. You don’t have to contribute the entire amount of the distribution.
2. Make contributions with appreciated securities that are held outside of a retirement count. The securities are transferred to the 501C 3 in place of a check/money. If you sold them and then donated the funds you have to pay Capital Gains Tax. This way the nonprofit sells the securities and pays no income taxes since they are tax exempt.

Donating Using Appreciated Securities

Giving stock that has appreciated in value is a great way to support the Motherless Daughters Ministry. It can also help you avoid capital gains taxes. Additionally, you are allowed you to deduct the full market value of the stock on the day it is received as a charitable deduction. For more information, please make sure that you or your advisors contact MDM when giving stock.

Make a bigger impact by donating long-term appreciated securities, including stock, bonds, and mutual funds, directly to charity. Compared with donating cash, or selling your appreciated securities and contributing the after-tax proceeds, you may be able to automatically increase your gift and reduce the taxes you would have owed had you sold the stock.

How does it work?

It’s simple and easy. When you donate stock to charity, you’ll generally take a tax deduction for the full fair market value. And because you are donating stock, your contribution and tax deduction may instantly increase over 20%.1 Would you prefer to donate bonds or mutual funds? The same benefits apply.

A larger gift and a larger deduction

Normally when you sell a stock, bonds, mutual funds etc. you are required to pay capital gains taxes to the federal and state. If you contribute the securities to the MDM, you do not reflect the transaction on your tax return and consequently there is no tax owed.

The transaction itself is very straight forward. First you contact whomever holds your stocks (Fidelity, Vanguard etc.) and instruct them to make the transfer. When the charity receives the stock etc. they normally sell it. Since they are a nonprofit, they pay no taxes on the sale. This allows them to use the entire amount of the contribution for their organization.

Charitable Giving Using Required Minimum Distribution (RMD)

If you are age 72 or older, IRS rules require you to take required minimum distributions (RMDs) each year from your tax-deferred retirement accounts.

A QCD (Qualified Charitable Distribution) is a direct transfer of funds from your IRA, payable directly to a qualified charity.

• Amounts distributed as a QCD can be counted toward satisfying your RMD for the year, up to $100,000.
• The QCD is excluded from your taxable income.
• This is not the case with a regular withdrawal from an IRA, even if you use the money to make a charitable contribution later on.
• If you take a withdrawal, the funds would be counted as taxable income even if you later offset that income with the charitable contribution deduction.

Why is this distinction important?

• If you take the RMD as income, instead of as a QCD, your RMD will count as taxable income.
• This additional taxable income may push you into a higher tax bracket and may also reduce your eligibility for certain tax credits and deductions.
• To eliminate or reduce the impact of RMD income, charitably inclined investors may want to consider making a qualified charitable distribution (QCD).
• Keeping your taxable income level lower may also help reduce your potential exposure to the Medicare surtax.

Am I eligible for QCDs?

With passage of the new legislation, the QCD provision is now a permanent part of the Internal Revenue Code. This means you can plan your charitable giving and begin reviewing your tax situation earlier each year.

The rules of QCDs

A QCD must adhere to the following requirements:

• The account types that are eligible for QCDs include:
  • Traditional IRAs
  • Inherited IRAs
  • SEP IRA (inactive plans only*)
  • SIMPLE IRA (inactive plans only*)
• You must be at least 72 years old (prior years 70 ½) at the time you request a QCD.
• For a QCD to count toward your current year’s RMD, the funds must be donated from your IRA by your RMD deadline, which is generally December 31st each year.
• Funds must be transferred directly from your IRA custodian to the qualified charity, and not payable to you or the distribution would NOT qualify as a QCD and would be treated as taxable income.
• The maximum annual distribution amount that can qualify for a QCD is $100,000. This limit would apply to the sum of QCDs made to one or more charities in a calendar year. If you’re a joint tax filer, both you and your spouse can make a $100,000 QCD from your own IRAs.

 

Disclaimer: Motherless Daughters Ministry, Inc. does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.