When you hit the age 70 1/2, the next calendar year you are required to withdraw from your IRA - it is called a Required Minimum Distribution (RMD).
You may know this, but did you also know that you can use those RMDs to give to charity? While getting a credit on your tax return?
When you instruct your IRA holding institution (TDAmertirade, Fideltity, etc.) to distribute directly to qualified charities, this results in a Qualified Charitable Distribution (QCD).
So, here's the scenario: I turned 70.5 on Oct. 5th, 2016 - which would make my birthday what? (April 5th) And now because of this, in 2017, I need to withdraw 2.7% of the total amount of my traditional IRA as my RMD. Assuming I have $100K sitting in my nice Fidelity IRA I have to take $2,700. BUT what if I don't want or need to take it but instead want to give it to a qualifying charity? (very important:the funds have to go directly from Fidelity to the charity. If not, doesn't work, sorry)
So, what I do is instruct Fidelity to wire or ACH the funds to the qualifying charity in the amount of $2,700 (equal to the amount I'm required to take due to RMD).
So, now I have a funny acronym salad. I've made a QCD in the same amount as my RMD, as relates to my IRA. Fun stuff, huh?
But here's the deal: At the end of 2017 I'll get a 1099-R noting that I've withdrawn from my IRA and normally, I'd report this on my tax return and pay ordinary income taxes on this amount. However, because I made a QCD for the same amount (it should be written on your 1099-R - it may not be, though, and if this is the case you'll have to ask the institution to redo it and/or give you a letter noting you've made a QCD) I am allowed to report $0 on my tax return. Nothing on my sch. A, nope, RIGHT ON THE 1040.
This is something, like I said, you probably do not know about. But if this applies to you, your parents or a loved one, let them know because it can be a massive tax savings for you WHILE supporting your favorite qualifying charities at the same time (for something you may already do).