Quarterly Tax Update – Charitable Giving & Tax Implications
By: Natalie C. Schuler, CPA, CFP®, Tax Advisor
Many of us give back to the community with monetary donations to charitable organizations. For those individuals that are taking required minimum distributions, one of the best ways to gift to charities is directly through your individual retirement accounts (IRAs). These donations are called Qualified Charitable Distributions (QCD). A QCD is a nontaxable distribution from an IRA directly to an eligible charity. You must be at least 70.5 years old to take advantage of the QCD strategy. For taxpayers who have reached age 72, the QCD can be used as part or all of your RMD, removing the otherwise taxable RMD from your income. A maximum amount of $100,000 per year is allowable as a QCD. If you are charitably minded and have RMDs, this is one of the most tax efficient ways to give to charity.
It is important to note that qualified charitable distributions are not reported to the IRS. In fact, the Form 1099-R will show the entire amount of your distribution as taxable, even if some or all of what was a QCD. The Form 1099-R reports the gross and taxable distributions from retirement accounts, such as IRAs. To claim a QCD on your tax return, reduce the taxable distribution by the QCD amount and note the QCD on page 1 the 1040. QCDs are not included as charitable contributions on the itemized deduction schedule. It is important to make your tax preparer aware of any QCDs made during the year as these can often be missed, resulting in a less favorable tax result.
We are always here to help you navigate charitable giving, tax advice and tax preparation so you are confidently making the best decisions possible. Reach out to us anytime with questions or for guidance.
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