Tax Alerts For Advisors To Share With CPAs

CPAs and other tax preparers will be additionally challenged this tax season. The 2018 tax returns they will be preparing will be the first under the new tax regime in the wake of the Tax Cuts and Jobs Act. Most changes were effective for 2018.

This makes it more likely that some IRA and retirement tax planning might fall through the cracks.

Here are three helpful 2019 retirement tax alerts for you to share with your clients’ tax advisors:

1. Take Early QCDs

Because of the tax law changes, more clients will have done qualified charitable distributions in 2018 than in the past, and even more will be planning them for 2019. But many clients may not have received the full benefit of the QCD for 2018 because they had already taken their RMD before doing the QCD transfer. They weren’t familiar with the mechanics.

QCDs are a tax-efficient way to make charitable contributions, but only for IRA owners or beneficiaries who are age 70½ or older. It’s too bad more people don’t qualify. Donor-advised funds don’t qualify and neither do gifts made to private foundations. Likewise for company plans like 401(k)s or 403(b)s since the QCD is only for IRAs.

The big tax benefit is that rather than including the annual required minimum distribution (RMD) in income and taking an itemized deduction, with a QCD the gift is made by making a direct transfer from the IRA to the charity. That transfer goes toward satisfying any RMD not yet taken and is excluded from income. There is no tax deduction for the donation since it is already effectively deducted by excluding it from income.

Unlike itemized deductions, QCDs reduce adjusted gross income. Itemized deductions do not. They only reduce taxable income. Taking an itemized deduction on an item that could have been excluded from AGI will increase the tax bill.

In addition, since the 2018 standard deductions are much higher, most clients will not be itemizing their deductions and will lose the tax benefit for their donations. The QCD lets them effectively salvage those deductions in addition to taking the standard deduction.