Although Section 408(d)(8) has been part of the Internal Revenue Code (“IRC”) for more than 10 years, and provides for a popular benefit by enabling persons who are older than age 70 ½ to make charitable contributions (up to $100,000 for a taxable year) by directing that all or any portion of their required minimum distributions (“RMD”) be sent directly to the charity in a way that excludes the RMD from the person’s gross income, the benefit has even more utility after the passage in 2017 of the Tax Cuts and Jobs Act (“TCJA”). How so? Because this “charitable donation” exclusion from gross income bypasses the need to take the deduction as a charitable donation on Schedule A of the federal 1040 return, which is particularly useful post-TCJA since many more taxpayers will no longer be itemizing on Schedule A, due to the TCJA’s increase of the Standard Deduction amount and also the TCJA’s $10,000 cap on the State and local tax deductions on the Schedule A.
Because the Connecticut income tax return starts by working off of federal adjusted gross income (rather than federal taxable income which is calculated after taking into account the Standard Deduction or the Schedule A) , the charitable donation exclusion from federal income will also automatically pass through to the CT Form 1040 (line 1).
For example, assume an individual over age 70 ½ receives an RMD for 2019 of $50,000. Under the general tax rules, the $50,000 will be treated as income for federal and Connecticut tax purposes in 2019. However, if the individual instead directs the payment from his IRA to one or more qualified charities, then the individual will not have to include any of the $50,000 in his 2019 federal adjusted gross income. Since the individual’s federal gross income is reduced by the $50,000, the individual’s Connecticut taxable income also will be reduced.
So, even if fewer Connecticut taxpayers now end up on their federal returns itemizing their charitable deductions on Schedule A, for those taxpayers who are at least 70-1/2 years old with IRA accounts, their tax savings generated by their charitable donations are still preserved both federally and in Connecticut if they structure their charitable giving in accordance with IRC 408(d)(8).