Smart Tax Planning for Business Owners: What Inherited IRAs Teach Us About Charitable Giving

As business owners, it’s easy to think tax planning begins and ends with your company’s income, deductions, and entity structure. But in reality, your personal finances, retirement accounts, and charitable giving are equally important parts of the picture.

Inherited IRA Charitable Giving: A Real-Life Example

Linda, age 63, recently inherited an IRA from her mother. Under current IRS rules, she must fully withdraw the balance within 10 years. Linda wondered if those required distributions could be directed straight to a nonprofit as a Qualified Charitable Distribution (QCD).

The answer? Not yet.

Qualified Charitable Distribution (QCD) Rules
Under IRS rules, QCDs are only allowed once the IRA owner—or the beneficiary of an inherited IRA—is at least 70½ years old. Until then, any distributions from an IRA (inherited or not) are treated as taxable income.

For someone like Linda, who is 60, this means:

• She cannot make a QCD yet.
• Donations from IRA distributions must first be recognized as taxable income. A deduction is only available if she itemizes her return.
• Tax-Smart Strategies Before Age 70½

Even if QCDs aren’t available yet, there are other charitable and tax-efficient strategies:

• Cash Donations: Take the taxable distribution, donate cash to a qualified charity, and potentially deduct the contribution if itemizing.
• Donor-Advised Funds (DAFs): Contribute highly appreciated assets like stocks to avoid capital gains and secure an immediate deduction. A DAF also allows flexible giving to charities over time.
• Strategic Withdrawals in Low-Income Years: For business owners, timing matters. If a year brings a business loss or significantly lower taxable income, that may be an ideal time to withdraw a larger portion of the inherited IRA. By matching withdrawals to low-income years, you can minimize the tax impact and smooth out overall taxable income across the 10-year window.

These options provide meaningful tax planning opportunities for business owners who want to align their charitable values and retirement distributions with financial efficiency.

Why Business Owners Should Think Beyond the Business

While Linda’s inherited IRA scenario may seem like a personal matter, it highlights an important truth: tax planning is not limited to your business operations.
For business owners, integrating personal and corporate tax strategies can:

• Maximize overall tax savings across both business and retirement accounts.
• Allow charitable giving strategies to support both community impact and tax efficiency.
• Position wealth and estate plans to benefit future generations.

Takeaway: Holistic Tax Planning Creates More Opportunities

For Linda, QCDs from her inherited IRA will only be possible after she turns 70½. Until then, she can still use other tax-advantaged strategies to support the causes she cares about.

For business owners, her story is a reminder: the best tax planning looks at the whole picture—business, personal, retirement, and charitable.
At Cambaliza McGee LLP, our tax team specializes in creating integrated strategies—helping clients not only reduce their business tax liability but also align their personal wealth strategies with long-term goals.

Need Guidance?

At Cambaliza McGee, we work with closely held businesses navigating complex ownership structures, reorganizations, and tax-sensitive transactions. If you're considering a change in QSub ownership or need help evaluating the tax consequences of a partial sale, contact us.