What is a Qualified Charitable Distribution?
A QCD is a way to get an even higher tax break if you are a giver and age 70½.
To save money on taxes, make your charitable donations through a QCD and satisfy your Required Minimum Distributions - TAX-FREE!
Why is this important?
The standard distribution has gone up, and unless you send money to your charity this way, you may lose the tax deduction you have enjoyed in the past.
Increased standard deduction:
The new tax law nearly doubles the standard deduction amount. This is Good News, but it also means you may not be able to get the itemized deductions anymore. Actually, using this method, you may be able to GET A HIGHER TAX BREAK. Single taxpayers saw their standard deductions jump from $6,350 for 2017 taxes to $12,000 for 2018 taxes (the ones you file in 2019).
Married couples filing jointly saw an increase from $12,700 to $24,000. These increases mean that fewer people can itemize.
Tax reform makes QCDs more valuable than ever. You may be one of the many taxpayers now taking the standard deduction, which eliminates your tax deduction for charitable gifts because you are not itemizing. A QCD is a way to remedy this situation by giving you a tax break for your 2018 charitable contributions.
- A QCD can ADD TO THE DEDUCTION. It allows the donations you made from your IRA to charity to be excluded from your income, lowering your AGI (Adjusted Gross Income).
- A QCD is a direct transfer of funds from your IRA custodian, payable to a qualified charity. QCDs can be counted toward satisfying your Required Minimum Distributions (RMDs) for the year.
- In addition to the benefits of giving to charity, a QCD excludes the amount donated from taxable income, which is unlike regular withdrawals from an IRA.
When can I do it?
You can do a QCD if you are an IRA owner or beneficiary and you are 70½ years old or older.
It is too late to give for 2018 taxes. All donations must be done before the end of the applicable tax year calendar year.
How do I do it?
Your QCD must be done as a direct transfer from the IRA to the charity. If the distribution is paid to you, you cannot give the funds to the charity AND get the TAX BREAK. However, if a check made payable to the charity is mailed to you and delivered by you to the charity WILL WORK as a QCD.
NOTE: The amount transferred from your IRA to charity as a QCD counts toward your RMD.
How do I report it to the IRS?
You'll report the total distribution on line 4a of your Form 1040 when you file your income tax return, then write the taxable amount on line 4b and write "QCD" to explain why part of the distribution isn't taxable. (If your total distribution were a QCD, you'd write $0 on line 4b and QCD next to it.)
Don’t make a mistake here and overpay their taxes by failing to reduce the taxable amount of IRA withdrawals by the amount of the charitable gift.
Vigilance - It’s essential that you tell your tax preparer (or plug into your tax software) the amount of your IRA distribution that was a tax-free QCD. Otherwise, there is no way of knowing that any part of the distribution is tax-free just by looking at your 1099.
A QCD is reported as a normal distribution on IRS Form 1099-R. While the QCD amount is not taxed, you may not then claim the distribution as a charitable tax deduction.
A QCD is not subject to withholding. State tax rules may vary, so for guidance, consult a tax advisor.
When making a QCD, you must receive the same type of acknowledgment of the donation that you would need to claim a deduction for a charitable contribution.
A tax advisor can help you determine if both your IRA and charity qualify for QCDs.
- Keeping your taxable income lower may reduce the impact to certain tax credits and deductions, including Social Security and Medicare.
- Any amount donated above your RMD does not count toward satisfying a future year's RMD.
- Funds distributed directly to you, the IRA owner, and which you then give to charity DO NOT QUALIFY as a QCD.
- You can do a QCD from your IRA, or inactive SEP or SIMPLE IRA.
- QCDs are not available from any employer plans.
- Also, QCDs don't require that you itemize, which due to the recent tax law changes, means you may decide to take advantage of the higher standard deduction, but still use a QCD for charitable giving.