Senior Citizen Discount for Taxes

Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

Published by Kate Moss

Being eligible to use Senior Citizen discounts is like a rite of passage in life. It says, ‘You’ve made it!’ Be proud of your age and take your Senior Citizen discount at McDonald’s for coffee, get cheaper movie tickets and even ask for savings from many cell phone companies. And now the US government has joined the list of organizations offering a Senior Citizen Discount for taxes. What? Really, you say? Yup, it’s true!

We are referring to Qualified Charitable Distributions (QCD). Congress allowed QCDs temporarily from 2006 until making it a permanent law with the Path Act of 2015.  This law states that when you are eligible, donations to qualified 501(c)(3) charities are fully tax free if done through a specific process. That’s a Senior Citizen Discount that not only benefits you but also your favorite non-profit organization.

There are multiple requirements that make you and the donation eligible for this Senior Citizen Discount.

  • You need to be taking Required Minimum Distributions (prior to 2020, it was age 70 ½ then the SECURE Act increased it to age 72)
  • The distribution is taken from IRA type monies that haven’t been taxed yet
  • The custodian of your account must write the check directly to your charity so it is considered a third party distribution, and
  • You are allowed up to $100,000 per year per person.

In IRS terms, a QCD is a reduction in your taxable income, meaning the IRS doesn’t recognize that distribution as a taxable event.

Let’s see how this can potentially help hypothetical clients John & Ellen.

John and Ellen have both reached the magic age of 72 where the IRS requires them to distribute a portion of their Pre-Tax IRAs and pay taxes on these distributions. This is called a Required Minimum Distribution (RMD). Together they have to take a distribution of $50,000 for this year and they are in the 15% tax bracket. John and Ellen receive pensions and Social Security so they don’t depend on their RMD to meet monthly expenses. They also, on average, donate $10,000 to their church and several other charities.

Here is a possible plan for John and Ellen:

  • First, using the QCD law, distribute their $10,000 donation from their IRA directly to their respective charities
  • Then, distribute the remaining $40,000, withholding Federal taxes of $6,000 (15%) and they receive $34,000 in their pocket. Depending on their State law, they might also need to withhold State taxes.

How does this plan benefit them?

  • The two distributions accomplish their RMD for the year in full
  • Their monthly expenses are reduced since their donations are being paid by the QCD giving them freedom to do other things
  • Using the QCD law means their $10,000 distribution/donation is not recognized as income and therefore is not taxed, which is a greater benefit than claiming donations on their Schedule A Itemized Deductions, if they even file that form with their taxes
  • Depending on the rest of their tax situation, there could be more benefits for them by reducing their income
  • And charities are happy to receive lump sum donations as it helps them to plan better for their annual needs for the people they serve.

 

Sounds intriguing, right? Being creative with the logistics of your finances can certainly give you long term benefits. As Financial Advisors, we want to make sure you are using all of the tools in your toolbox to meet your life objectives. This tool, your Senior Citizen Discount for Taxes, could be a really great strategy for you.

If you’re not 72 yet, pass this important tax saving information to your parents or grandparents. Or if you are involved in the fundraising of a non-profit organization, we could guide you in crafting language to encourage donors to use QCDs to save in taxes, which in turn could increase giving.

We encourage you to consider this meaningful tool for your Required Minimum Distribution, cash flow, taxes and donation planning. Your next step is to contact us because there are a few other important logistics that need to be discussed before implementing. We look forward in helping you use your Senior Citizen Discount for taxes.

**The information in this material is not intended as tax advice. Please consult a tax professional for specific information regarding your individual situation.

 

Share:
facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.
Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

RECENT POSTS

Tips to Help You Stay Strong During Market Volatility

It’s almost impossible not to feel anxious at the dips and dives the stock market has been taking recently, compounded by relentless inflation-focused headlines. That’s why you might be surprised to learn there’s a lot of positive news to be had, despite the market uncertainty. 

529s, Roth IRAs and Other Strategies for Your College Savings Plan

By Craig Lemoine, Director of Consumer Investment Research   I often find college savings at the top of my pile of financial stressors. Unless I find a money tree in my backyard, my oldest child is going to turn 18 well before I retire. We all have different values surrounding the educ …
1 2 3 56 57 58

Get in Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Schedule a Consultation