Qualified Charitable Distribution

Qualified Charitable Distribution from IRAs Permanently Extended

Officially approved by Congress on December 18th, 2015, there will be no more waiting until the final weeks of December (or beyond) to see if Congress will extend the Qualified Charitable Distribution from IRAs. The Protecting Americans from Tax Hikes (PATH) Act of 2015 includes a provision to permanently extend the ability of individuals at least 70½ years of age to exclude from gross income qualified charitable distributions from Individual Retirement Accounts (IRAs) of up to $100,000 per taxpayer in any tax year.

Quick History

Since 2006, our complex tax code made for an on again, sometimes off again allowance for taxpayers aged 70½ years or older to make qualified charitable distributions (QCD) of up to $100,000 directly from an IRA to a charity. For those charitably inclined, this made for a perfect way to satisfy one's Required Minimum Distribution (RMD) and not be taxed on income.

Qualified Charitable Distribution in 2015

If you have already taken your Required Minimum Distribution (RMD) for 2015, you will not a be permitted to apply your RMD to a QCD. That is, you cannot take the proceeds of your RMD and make a donation to a charity without being taxed as the QCD requires that the distribution go to the charity directly. If you go ahead, you will receive a normal charitable deduction which will partially offset the tax impact of the RMD.

As I wrote previously in Qualified Charitable Distributions from IRAs on Hold in 2015, taxpayers who made their distributions directly to charities took a chance that Congress may not have extended the QCD but as it turns out will receive favorable treatment.

Whatever course you take, be sure to take your Required Minimum Distribution before the end of the year or else you could be faced with a penalty of 50% of your RMD amount.

Highlights of the Protecting Americans from Tax Hikes Act of 2015

Other provisions to be made permanent include:

  • The enhanced Child Tax Credit
  • The enhanced American Opportunity Tax Credit for college
  • The enhanced Earned Income Tax Credit
  • Above-the-line deduction for teachers who buy school supplies
  • Charitable deduction of contributions of real property for conservation purposes
  • The Research & Development Tax Credit and Section 179expensing
    • Permanently extends the research & development tax credit
    • Allows for eligible small businesses to claim the credit against the alternative minimum tax liability or against the employer’s payroll tax liability
    • Section 179 provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014; A new threshold at $500,000 and $2 million, respectively, from the current amounts of $25,000 and $200,000.
  • Exception extended from subpart F income for active financing income
  • Extends the rule reducing to five years (rather than 10 years) the period for which an S corporation must hold its assets following conversion from a C corporation to avoid the tax on built-in gains

There are other areas included in the legislation including some provision not made permanent. For more information, reference this link: Section-by-section Summary of the Proposed "Protecting Americans From Tax Hikes of 2015."

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Have you made your RMD for 2015? Were you waiting for a decision on QCD? Post your comments below.

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About the Author: Andrew Wang

Andrew Wang

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