One of the features of the new law is the significant increase in the standard deduction, which almost “doubles” the amount of the deduction from last year. Beginning this year, the standard deduction increases to $12,000 for individuals, $18,000 for heads of household, and $24,000 for married couples filing jointly and surviving spouses. As a result of this increase, many church members who previously deducted their tithes and offerings on Schedule A will not need to do so this year.

However, if you are age 70½ and are required to take minimum distributions from your IRA (or 401K), there is a tax benefit that will effectively and legally allow you to reduce your income by the amount of tithes and offerings you make to the Church. It is called a “qualified charitable distribution” (QCD) and it works this way. 

If the QCD is paid to you, it is included in your income and you pay taxes on it. But, if you elect to have the fiduciary of your IRA or 401k distribute funds directly to the Church, the amount you contribute will not be included in your income, thereby effectively reducing your tax expense. There are other tax advantages, too, including how much of your Social Security income may be taxed. 

Additionally, making a QCD directly to the Church for payments of tithes and offerings reduces the required minimum distribution you are required to take. Please note that charitable contributions using this method are limited to $100,000 per year by law.

Here’s a note from a Church member who wrote to us, who uses this method and the effect it has had on his taxable income and tax expense: 

“This is what I do: I use a QCD from one of my IRA’s (this also applies to 401k’s) to send a lump contribution to the Church, which includes first tithe, regular offerings, assistance fund, camp scholarship fund, video studio, and tithe-of-tithe. This (is) a great replacement for taking a charitable deduction on Schedule A, which likely will no longer be advantageous for most (due to the increased standard deduction). It also is not counted in determining the taxable amount from my Social Security payments, and therefore lowers my overall tax due. I get a double deduction: the QCD is not counted as income, and this lowers the taxable amount of social security. Both of these lower my AGI (adjusted gross income) and my taxes for the year. Not only that, but I get the double (increased) standard deduction starting this year! Wow!”

The process is fairly easy. Ask your IRA or 401K fiduciary or agent about making QCDs directly to the Church and not to you, and they will likely give you a form that you must complete that will ask the amount you wish to contribute and the name and the address of the Church. 

This is a great opportunity for those of you to make your contributions and enjoy an additional tax break you may not have thought of previously. If you have any questions about this, feel free to call or e-mail us, or speak to your plan agent.