(Q & A) Tax Questions

Jan 2018


Dear Rick:
My wife and I are in our mid 60s and retired. Because of a lawsuit I receive more than enough money to cover all our needs. From a tax standpoint we itemize our deductions only because of the amount of charitable contributions we make on a year-by-year basis. We average about $15,000 a year in charitable contributions. We always make our yearly contributions in February and my first question to you is since under the new law I will be taking the standard deduction as opposed to itemizing, I wanted to know if in making this year’s charitable contributions if I could use my IRA? My second question is since I won’t be itemizing in the future is there any reason to save any of my receipts?


Dear Joe:
I love the way you think; however, you cannot use your IRA to make charitable contributions. Unfortunately, if you take an IRA distribution,you will be taxed on it no matter what you do with the money.

There is an exception to the rule but unfortunately you do not qualify for it. For someone who is over 70½ and thus, required to take minimum required distributions, they can do what is known as a qualified charitable distribution. In this transaction you can transfer all or a portion of your minimum required distribution directly to a charity and the result is that you’re not taxed on that money. The key to qualifying for this exception is that you must be over 70½. Since you are not at that age you cannot take advantage of it.

For seniors who are over 70½ and are taking required minimum distributions from their IRAs, if you are charitable in nature you should look at the new tax law to determine whether you are going to itemize your deductions or not. For those who are not going to itemize their deductions, making your charitable contributions through your IRA, can be a significant tax savings. The key to the transaction is the money must go directly from the IRA to the charity. If you have the check sent to you and you sign it over to the charity, unfortunately, you still must pay tax on the transaction. The only way to avoid the tax is to have the money directly transferred to the charity.

With regard to saving tax receipts, this is a tough question. If someone knew with 100 percent certainty they would not be itemizing their deductions, they would probably not have to save the receipt. On the other hand, since the tax law is brand new, I would generally lean towards being safe rather than sorry, and thus, I would save the receipts. After all, we never know what’s going to happen with the tax law and it wouldn’t be beyond the realm of possibility that there are tweaks in the tax law over the next year that could change your tax status.

In that regard, it is important that everyone set up a tax file for 2018. When you get receipts or other documentation that could have some tax implications, it is important to save them. Furthermore, you’re also going to start receiving your 2017 tax information and I cannot stress enough the importance of saving those documents. One sure way of having IRS scrutiny is to not report income on a 1099 or W2. Therefore, it is important that you save all the tax information you receive over the next couple of months.

One thing people should always understand about tax laws and that is that they are constantly changing. You may not read about it in the papers and it doesn’t get much publicity, but tax laws are always changing and we never know if the tax law today is going to be the tax law at the end of the year. Therefore, I would encourage everyone to set up a good recordkeeping system with regard to taxes, so that no matter what happens to the tax law, you will be prepared.

Good luck!


If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com