The Tax Cuts and Jobs Act should change the way many people make charitable contributions. Few people will be itemizing expenses because of the doubling of the standard deduction and reduction of deductions allowed. That means fewer charitable contributions will be deductible and the tax benefits from making gifts will be lower.
That’s actually good news for many people. Writing a check is not the most efficient way to give to charity. One of the most efficient ways to give is available only to those ages 70½ and older, and the changes should cause many to gravitate toward what for several years has been one of the smartest ways to give.
It’s known as the qualified charitable contribution (QCD). It was in and out of the tax code as a temporary provisions starting in 2006. But Congress made it permanent in the Protecting Americans from Tax Hikes Act of 2015. Under the QCD you make a charitable contribution directly from your IRA.
To understand the benefits of the QCD, first consider how a charitable contribution from an IRA that doesn’t qualify as a QCD is taxed. When the QCD rules don’t apply, a charitable contribution made with IRA funds is first treated as a distribution to the owner. It doesn’t matter if the contribution is made by a direct transfer from the custodian to the charity, or if a distribution is made to the IRA owner who then makes a charitable contribution. In either case, the amount is included in the gross income of the IRA owner.