You’ve lived a good life. You’ve set aside money in retirement accounts. Then you receive a letter from your finance company stating that you are now required to start taking Required Monthly Distributions (RMDs) from all of your retirement accounts. You do the math and quickly realize that this amount of money could cause you to have to pay income taxes. You contact your Tax Professional and they tell you how the money will affect your tax situation. There is a legal way that you can reduce your taxes and help your favorite charities at the same time. Example: A Married Couple over age 72 drawing only Social Security who always takes the standard deduction. Your financial advisor tells you that your RMD is $3500 per month or $42000 per year. Your total social security earnings for the year are $32185. What does this RMD do to your tax situation? Without the RMD, your taxable income is $0 meaning you pay no taxes and you get no refund. The first way is you receive the funds and you give $41000 to your church or a favorite charity. The result is your retirement income is $42000 which causes your Social Security to be taxed at $17979. That makes your Adjusted Gross Income $59979. You gave $41000 to your church and you were able to itemize your deductions with a deduction of $41550 making your Taxable Income $18429. The Tax on this amount is $1843. In this scenario, you would be paying the IRS $1843. Your Virginia Taxes would be $0. Ouch! $1843 tax on the money you didn’t need but were forced to take! What could you have done to avoid these taxes? There is a legal way to reduce the taxable amount of these RMDs by making a Qualified Charitable Distribution (QCD). You still have to take the $42000 only this time you instruct your financial advisor to send $41000 of the $42000 to your Church. By making a QCD, your retirement income is only $1000 which eliminates the taxes on your social security. You get the Standard deduction of $28400 because you no longer need to itemize. Your Taxable income is now $0. You pay $0 in taxes and you did the exact thing with the RMD money! This difference is how that money was given to the church. In the first scenario, you get the money; you write the check to the church and take the deduction. However, the entire $42000 is taxable income. By taking the QCD route, your financial advisor sends the check directly to the church on your behalf. The church sends you the statement at the end of the year and you get the deduction (if needed). Adams Enterprises will advise you on how to legally reduce your taxes. A QCD is just one method. Ask questions! As you can see, it can keep you from having to pay taxes.