A recent Newsday article indicated that charitable contributions to donor-advised funds can be deducted. But you've written on the contrary, that DAF contributions aren't deductible. There’s probably a nuance that escapes me. Can a charitable donation made from my IRA be a Qualified Charitable Distribution that counts toward my annual Required Minimum Distribution, but won't be added to my taxable income for the year?
Yes. A QCD paid directly from your IRA to a charity works just as you’ve described.
It sounds as if you’ve confused some tax code apples, oranges and bananas.
The apple: Donor-advised funds are charitable accounts, often set up at mutual fund companies. Your contributions to a DAF (which can include cash, stocks, bonds, mutual fund shares or privately held business shares) are immediately tax-deductible if you itemize deductions. As the donor, you select the charities and decide when, and how much, your DAF will give them over time.
The orange: A Qualified Charitable Distribution is paid directly from your IRA to a charity. Let's say your annual RMD is $10,000, and your IRA pays $4,000 in QCDs to charities. If you withdraw an additional $6,000, you've met your RMD obligation, but added only $6,000 to your taxable income. This is true whether you itemize or take a standard deduction.
The banana: Taxpayers who take the standard deduction normally can't claim other charitable donations. But for the 2021 tax year, there’s an exception. Single taxpayers can claim up to $300 in 2021 cash donations; joint filers can claim up to $600. But that $300 (or $600) cannot include cash contributions to DAFs, which are only deductible to taxpayers who itemize.
The bottom line
Some tax rules depend on whether you itemize deductions or take a standard deduction on your federal tax return.
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