PID 3705


Planner’s Tip: Reporting Qualified Charitable Distributions

By Brittany Orr, RICP®

Individual Retirement Accounts (IRAs) are accounts funded with dollars that you haven’t paid taxes on – yet.  The government requires that you begin taking Required Minimum Distributions (RMDs) when you reach age 73*, if you haven’t already had to do so.  This forces you to withdraw a certain amount from your account each year, giving the IRS its cut when you have to pay taxes on the distribution.  However, if you have planned charitable giving, you can instead choose to take your RMD in whole or in part as a Qualified Charitable Distribution (QCD), and that amount is excluded from taxable income for the year.  A QCD functions as a tax-free donation, but it must be paid directly from your IRA to an eligible charitable organization.  The maximum annual QCD withdrawal amount is $100,000 per person as of the 2023 tax year.

If you take a QCD, you must keep track of the date and amount of the distribution and maintain a record for reporting purposes. According to guidance provided by the IRS, a QCD from the prior year must be reported on your federal income tax return. Any distributions from IRAs are reported on 1099-R tax forms. However, a 1099-R does not include a specific code for a Qualified Charitable Distribution, meaning that a QCD will be coded as a normal taxable distribution. It’s important that this information is shared with your CPA or the tax preparer responsible for filing your return. As the donor, or in this case the owner of the IRA, you must get written acknowledgment of the charitable contribution from the organization and maintain it in your records. This generally includes key details such as the amount of the contribution, the date, and if the donor received anything in return for the contribution. For more information on IRA distributions and QCDs you can reference Publication 590-B on the IRS website.

* RMD age is pushed back to 75 for those born in the year 1960 or later.

Shannon Dermody

Shannon DermodyTEST

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