Take Advantage of QCDs

Farmers who are at least age 70 1/2 and don't itemize should use their IRA to make charitable contributions

The standard deduction for a married farm couple who are both over age 64 this year is $30,500 ($27,700 normal deduction plus $1,400 for each spouse). Most farmers do not come close to itemizing their deductions, but more farmers are also charitably minded.

If you make the donation using your own funds and still are under the standard deduction amount, you get no benefit from making the deduction. However, if you have your IRA custodian make the contribution directly for you, an extra tax benefit will result.

For example, assume Ben and Josie normally give $10,000 to their church and they are in the combined 25% federal and state tax bracket. If they make the payment in cash, no benefit to them. However, if they have the IRA custodian transfer the $10,000 to their church, they will save $2,500 on their income taxes.

Although a $10,000 distribution from an IRA is normally taxable, if it is paid directly to a charity, it is non-taxable. There is no deduction for the charitable donation, but effectively there is since the distribution is tax-free.

Although the required beginning date for distributions for an IRA is now 73, the QCD is available for any taxpayer that is at least age 70 1/2 and you can each donate $100,000 per year. This amount will now be indexed to inflation beginning in 2024.

You can also do a one-time distribution of up to $50,000 to a charitable remainder trust or a charitable life annuity. Likely the life annuity will be the only choice for most taxpayers since CRT fees would soak up any benefit of the CRT.