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  • Writer's pictureDoug Lagerstrom

Qualified Charitable Distributions | For the Charitably Minded

We love using legal strategies that allow our clients to keep more of their money and pay as little as possible to the IRS for government use.  Tax evasion is illegal, but tax avoidance is not.  The Supreme court addressed this issue in the 1935 case Gregory vs Helvering.  Justice Sutherland delivered the opinion of the Court.The legal right of a taxpayer to decrease the amount of what otherwise would be his [or her] taxes, or altogether avoid them, by means which the law permits, cannot be doubted”.1 Many workers legally reduce their current income tax by contributing to a 401K or contributory IRA.  After decades of deferring tax on these funds, some older retirees are now faced with minimum mandatory distribution rules to navigate. Sometimes these rules complicate efforts to further avoid taxation on this money.  What can retirees do?


The IRS allows individuals who are over aged 70 ½ to make distributions directly to charity.  Per the IRS website, “Qualified charitable distributions allow eligible IRA owners up to $100,000 in tax-free gifts to charity.”2 For those over age 73, this distribution can reduce or potentially eliminate a taxable mandatory distribution.


Although the distributions to charity are not taxable to the IRA owners, some IRA custodians put the onus on the taxpayer to report the distribution as non-taxable.  They do this by checking the taxable distribution not determined box on the 1099R form.  Unsuspecting taxpayers may find themselves reporting the distribution to charity as taxable if they, or their tax preparer, do not carefully review the form and properly report the charitable distribution as a non-taxable event.


We recommend keeping a copy of the distribution request and a copy of the check issued from the trustee of your retirement account.  That way if the IRS sends you a letter requesting documentation, you have it prepared to send to them.


Qualified charitable distributions can be a great way to give your funds to a worthy cause and reduce your current income tax burden.  We recommend care in the execution of this transaction to ensure the best potential income tax results for you.


Doug Lagerstrom



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