04 Nov Are donations from an IRA taxable in N.J.?

Q. If you are more than 70 ½, you can donate from traditional IRA tax free to 503(c) charity. Would these withdrawals from the IRA count as income in New Jersey?
— Retired

A. It’s very generous of you to want to donate to a charity.

Individuals age 70 ½ and older can distribute otherwise taxable IRA amounts directly to a tax-exempt charity. These distributions are called qualified charitable distributions, or (QCDs), said Gail Rosen, a Martinsville-based certified public accountant.

She said the distributions are tax-free to the donor for federal purposes.

But no charitable deduction is allowed on the New Jersey 1040 as follows: “For New Jersey income tax purposes, no similar legislation has been adopted. Therefore, there is no change to the New Jersey income tax treatment of distributions from an IRA accounts that corresponds to the federal tax treatment and such distributions will be taxed in the same manner as any lump-sum withdrawal.”

Still, making the donation can be a smart federal tax move, Rosen said.

First, keeping the donation out of donor’s AGI (adjusted gross income) is important because it can help the donor reduce the threshold for deducting medical expenses, which are only deductible to the extent they exceed 10 percent of AGI, she said.

Also, it can reduce taxes on the donor’s Social Security benefits and also help the donor avoid a high-income surcharge for Medicare Part B and Part D premiums, which kick in if AGI is over certain limits, she said.

“Further, because charitable contributions will not yield a tax benefits for those taxpayers who no longer itemize their deductions – thanks to the larger standard deduction for 2018 and thereafter – those age 70 ½ or older and are receiving Required Minimum Distributions from IRAs may gain a significant tax advantage of making annual charitable contributions by way of a QCD from an IRA,” she said.

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This story was originally published on Nov. 4, 2019.

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