QCD and State Tax Credit
We have a client that wants to gift $50,000 to a local charity via QCD. He will have distributed $77,142.84 from his IRA which is his RMD as well as $6,000 via QCD. He is asking about the 40% state tax credit. I believe the state tax credit deduction is up to $15,000 annually per individual or $30,000 for couple. Should he split the gift between he and his wife? Should he push it all to 2025 or split it between 2024 and 2025?
Permalink Submitted by Alan - IRA critic on Wed, 2024-12-18 16:03
While state specific, generally if a state tax credit or deduction exceeds 15% of the donation, it will disqualify the QCD per the IRS. Therefore, in most states it’s a choice of the QCD benefit or the state tax credit.
There might be an advantage after determining the amount of the RMD for each spouse, in having one spouse make a QCD and the other the state tax donation with no QCD. They would have to crunch the numbers.
Permalink Submitted by Tracy Hawbaker on Wed, 2024-12-18 16:14
Thank you!
Permalink Submitted by Tracy Hawbaker on Fri, 2024-12-20 10:12
Per the above amounts, does the client have $23,857.16 that could be gifted as a QCD for 2024?
Permalink Submitted by Alan - IRA critic on Fri, 2024-12-20 17:30
The 2024 QCD limit is 105,000 per taxpayer (spouse). Since 6000 has already been donated, that leaves a possible QCD balance of 99,000 for the spouse that made the 6000 QCD.
However, claiming a state tax credit in excess of 15% of the donation will invalidate the QCD entirely. And it’s not clear if the taxpayer does not claim a state credit for more than 15% of the donation to save their QCD, when they could have taken a larger state tax credit would be allowed by the IRS. Another factor is when the state tax credit erases the entire state income tax bill and the amount of the state tax eliminated is under 15% of the QCD, whether that would invalidate the QCD or not.
So it’s best for this couple to check with a local CPA on this matter.