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QCD vs. Charitable Deduction: Which Is Better for You?

Whether a Qualified Charitable Distribution (QCD) or a charitable itemized deduction is better depends on your tax situation. Let’s compare both to help you decide which one provides the greatest benefit.

1. When a QCD Is Better

A QCD (Qualified Charitable Distribution) allows you to donate directly from your IRA (if you’re 70½ or older) and exclude the donation from taxable income.

✅ Best if you take the standard deduction – Since a QCD reduces taxable income, it benefits taxpayers who don’t itemize.
✅ Lowers Adjusted Gross Income (AGI) – This can help:

• Reduce Medicare premiums (IRMAA surcharges)

• Lower the taxable portion of Social Security benefits

• Avoid higher income tax brackets
  ✅ Counts toward Required Minimum Distributions (RMDs) – If you're 73 or older, a QCD satisfies RMD requirements without adding to taxable income.
  ✅ Max donation limit: Up to $100,000 per year per person ($200,000 for married couples filing jointly if both have IRAs).

🔹 Example:
John, 75, has a $50,000 RMD and doesn’t need the money for personal expenses. If he donates $20,000 via QCD, only $30,000 of his RMD is taxable instead of the full amount, lowering his AGI.

2. When a Charitable Deduction Is Better

A charitable deduction allows you to write off donations from your taxable income, but only if you itemize deductions (rather than taking the standard deduction).

✅ Best if you itemize deductions – If your total itemized deductions (including donations, mortgage interest, medical expenses, etc.) exceed the standard deduction ($14,600 for single filers, $29,200 for married couples filing jointly in 2024), an itemized deduction may provide greater tax savings.
✅ No age or income restrictions – Anyone can donate and claim a deduction if they itemize.
✅ Allows donations from any source – You don’t need to use an IRA to donate.
✅ Higher donation limit: You can deduct up to 60% of AGI for cash donations (compared to QCD’s $100,000 max).

🔹 Example:
Sarah, 65, has high mortgage interest and medical expenses, so she itemizes her deductions. If she donates $20,000 to charity, she can deduct the full amount and reduce her taxable income accordingly.

3. When You Might Use Both

If you already itemize deductions but still want to lower AGI (for Medicare, Social Security, or tax bracket reasons), you could:
1️⃣ Donate up to $100,000 via QCD to reduce taxable income.
2️⃣ Make additional charitable donations from cash or assets and claim them as itemized deductions.

🔹 Example:
Tom and Lisa, both 74, have $200,000 in RMDs and itemize deductions. They donate:

• $100,000 via QCD (excluded from taxable income).

• $50,000 from a taxable account (claimed as an itemized deduction).

They benefit from both strategies—lower AGI and additional deductions.

Final Verdict: Which Is Better?

💡 Use a QCD if:
✔ You don’t itemize deductions and want to lower taxable income.
✔ You want to reduce RMD tax burdens (if you’re 73+).
✔ You want to lower Medicare premiums or Social Security taxation.

💡 Use a Charitable Deduction if:
✔ You itemize deductions and your total deductions exceed the standard deduction.
✔ You are younger than 70½ or want to donate non-IRA funds.
✔ You plan to donate more than $100,000 (the QCD limit).

💡 Use Both if:
✔ You itemize but also want to lower AGI.
✔ You need to satisfy RMDs but want to give more than $100,000.

Need Personalized Tax Advice?

If you’re unsure which strategy is best for your situation, consulting Coker Financial Services can help you maximize tax savings.