Did you make an IRA charitable distribution this year? If so, you’ll want to report it on your tax return. Charitable contributions are a great way to reduce your taxable income and build your legacy. After you turn 70 ½, you must take required minimum distribution (RMDs) from your traditional IRA, and you can transfer up to $100,000 per year to charity tax free to count towards your RMD. This is called a qualified charitable distribution (QCD), and there are a few things to know about the process of reporting it during tax time.
You must make a QCD by December 31st, which is also the deadline for RMDs, unless it is your first time taking one. The money must be transferred directly from an IRA to the charity, and the charity must cash the check before the end of year. This way, the contribution can be excluded from the adjusted gross income (AGI) whether you are itemizing or taking the standard deduction. Excluding the charitable contribution from your AGI allows more AGI-based tax benefits, resulting in lower taxes. Now that the standard deduction has increased to $24,000 for couples and $12,000 for individual filers, QCDs can especially help lower retirees’ tax burdens. The limit is $100,000 per person, so you and your spouse can each contribute that amount from both of your accounts.
Your IRA administrator doesn’t specify whether your contribution was a withdrawal or a tax-free transfer to a charity on your 1099-R. So, when you file your Form 1040, you report the total distribution amount, then the amount of that you kept, and then enter “QCD” to indicate the remainder, which is your charitable contribution. Also, keep a record from the charity documenting your contribution. Before contributing to a charity, make sure it is eligible to receive a QCD, meaning it is a 501(c)(3) charity and not a Donor Advised Fund or private foundation.
Qualified charitable distributions can be a good way to make the most of your RMDs. It’s important to follow proper procedures when making a QCD, and understand how it works to decrease your tax burden in retirement under the new tax code. Knowing about when to make a QCD and the process of reporting it is important for those 70 ½ and older who face taking required minimum distributions (RMDs).
If you want to make charitable giving a part of your retirement plan, contact the professionals at Epstein & White. We can help you throughout the whole process – from finding a qualified charity to specifying a QCD on your tax form. Click here to schedule your complimentary, no obligation review today.